China’s chip plans an economic attack on Taiwan?

Its quite clear that semiconductors and electronics are the rocket fuel that has been powering Taiwan’s economy for as long as anyone can remember. I don’t know if PC motherboards are made anywhere else on the planet and clearly TSMC is an economic powerhouse which spawns many other supporting industries built around and on the semiconductor devices that come rolling out of its fabs.

The tiny little runaway island off the coast of China is economically huge and in many ways in a much better position in the critical technology area than its large and jealous neighbor.

Becoming a “player” in the semiconductor industry…
Its also clear that China needs to be even more in the technology space and a key ingredient is semiconductor device technology which they are still lacking. Yes they have SMIC and fabs from outside companies being built but they are not up to par with the US, Korea or Taiwan. This limits them to always being dependent on others .

So, spending $100B to get in the chip business makes all the sense in the world for them and I am frankly surprised they didn’t start earlier than this year (in earnest). It will help them both economically and militarily.

Infiltrating Taiwan’s economic core?
If China can intertwine its economic investments with companies like TSMC, ASE, UMC and others if will greatly accelerate what is already the “fait accompli” of Taiwan being merged back into greater China. What might otherwise take another generation could likely be accomplished in a much shorter period without so much as a rattled saber or shot fired. Essentially taken over from the inside out not the outside in…..

Other targets outside Taiwan could also help
If China buys Global Foundries at some fire sale price as Abu Dhabi exits stage left they could get their hands on a lot of IBM’s semiconductor secret sauce which they would not have been able to directly purchase a year ago. But who’s to argue now that its a foreign entity selling to another foreign entity? China could also pick up AMD at fire sale pricing and get immediate access to server/cloud capable CPU’s as well as PC compatible parts which already are produced by Global Foundries.

The only thing missing is memory….maybe the Japanese will get out of the last remaining island of semiconductor technology and sell off Toshiba’s memory operations….hey, you never know. In short , with a $100B wallet it isn’t that hard to buy your way into the semiconductor business.

Could put heat on Korea as well…
Although Taiwan is a clear target and perennial thorn in the side of China, Korea is not that far from China and the counterpoint to China’s North Korean Puppet state. Right now a big slug of both Taiwan and Korea’s technology economic output is exported to China. If that goes away because China can produce it all by itself it would put a torpedo in the sides of both economies that would significantly weaken them.

Expect China to accelerate the Semiconductor M&A in 2016
With all these benefits and a large war chest there is no reason to think that China will slow down in 2016. We would expect that China may be the gasoline thrown on the fire of an existing M&A semiconductor bonfire.

This could certainly help the depressed overall valuations in the semiconductor industry that have been left in the dust by, Apps, IOT, the cloud and everything software driven….

Apple buys a fab????
We could not help but notice that Apple has bought a former Maxim semiconductor fab in San Jose , not too far from its headquarters and right next door to a new Samsung building (interesting poetic justice…).

Although this is far from a state of the art fab running 14nm devices its does come fully furnished with 197 semiconductor manufacturing tools from the standard suspects. It was recently shut down in July so its not a graveyard.

Not building the A10 any time soon…..
It is a small, low volume/prototype capable operation that is likely suited for the other ancillary chips that go into apple devices (all that semiconductor glue that holds everything together). At $18M is not even a microsecond’s rounding error in Apples tsunami of money but the fact that they are doing it is interesting.

It was also recently revealed that Apple has a secret R&D facility in Taiwan that appears to be aimed at display technology.

Both of these moves appear to make Apple appear a lot more “Samsung like” in their ability to develop chip and display technologies.

Going Vertical?
Samsung has been a vertical manufacturer for a long time now and it has obviously served them well. These two moves seem to imply that Apple is perhaps taking a more active/controlling role in the design and manufacture of all parts that go into its devices. It sure sounds like a change in strategy, perhaps its a way to try to say ahead and differentiate Apple products as having outsiders develop technology doesn’t keep it out of the hands of competitors.

If these are the first two shots in this new direction we can imagine that Apple could easily buy its way into a lot of other key technology areas, after all its not doing a lot else with its cash hoard and this seems like a great strategic use.