A Semiconductor Shortage? Not if TSMC Can Help It

Taiwan Semiconductor Manufacturing Co (TSMC), the largest holding in the VanEck Vectors Semiconductor ETF (SMH), is set to pour in $2.8 billion into China to up their production of chips for use in automobiles.

As of this writing, TSMC comprises about 15% of the fund’s assets, and given its strong performance the past year, it’s easy to see why. The semiconductor company is up over 100% the last 12 months thanks to a global chip shortage paired with rising demand.

In order to meet that demand, an expansion into China only makes sense. The nation’s aggressive plans to achieve technological independence will need help, and TSMC is there to profit.

“Taiwan Semiconductor Manufacturing Co., the world’s largest contract chipmaker, will invest $2.8 billion in China to ramp up the production of semiconductors used in automobiles,” a South China Morning Post article said.

“TSMC will install new production lines at an existing plant in Nanjing, which are slated to begin mass-production in 2023 to meet the growing demand for 28-nanometer automotive chips,” the article added. “This is the company’s first major investment in mainland China since it announced the construction of the Nanjing plant in 2015. Although the company has not revealed details, the new lines are expected to have a monthly production capacity of 40,000 wafers.”

TSM Chart

Only More Growth Ahead for Chips This Year

The pandemic has upped the ante for chipmakers. As the reliance on computer technology grew, the need for chips to provide processing power also spiked.

“Demand for computers, monitors and other digital equipment also remains strong as more people work from home due to the coronavirus pandemic, exacerbating the situation,” the South China Morning Post article said further. “Earlier this month, TSMC CEO C.C. Wei told investors that the current semiconductor shortage “will continue throughout this year” and may not be resolved until around 2023.”

SMH, which is up about 14% this year, seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS® US Listed Semiconductor 25 Index. The fund normally invests at least 80% of its total assets in securities that comprise the fund’s benchmark index.

The index includes common stocks and depositary receipts of U.S. exchange-listed companies in the semiconductor sector. Such companies may include medium-capitalization companies and foreign companies that are listed on a U.S. exchange.

SMH Chart

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