The Motley Fool

1 Semiconductor Giant That Won’t Be Worried About India’s Chip Ambitions

India’s nervous and with good reason. The country’s GDP has grown on the back of information and technology services, yet India still imports the majority of the hardware used in computing devices. In 2018, the country imported US$55 billion worth of electronic goods and it only exported only US$8 billion. 

And this, understandably, has the Indian government concerned. In today’s world, it’s all too easy for geopolitical conditions to disrupt a supply chain, and if this happened, India could be cut off from the critical hardware it needs. 

Now, India is trying to transform into a chip-producing superstar. In doing so, it hopes to protect its domestic technology market and enter the global semiconductors market. 

But can India pull it off?  Or would it be smarter for investors to keep their eyes on other companies in countries that already have established semiconductor ecosystems? 

Trying to enter Taiwan’s domain 

While India’s ambitions in the global semiconductors market may be grandiose, its ability to meet those goals is yet to be seen. It’s likely the country will face issues competing on the global market when it comes to both quality and manufacturing speed. 

Let’s first look at quality. While the Indian government has invested over US$45 million into the design and development of a new collection of computer chips, those chips will be built based on non-proprietary technology. This means they may not be able to compete with some of the chips already on the market. Beyond that, there’s also the issue of India’s current manufacturing infrastructure. 

Currently, the country only has one factory that makes semiconductors — a government-owned factory in Chandigarh. This lack of manufacturing infrastructure will likely hamper India’s attempt to enter the market and keep up with competitors like China and Taiwan. 

Both countries already have the infrastructure needed for rapid production. India will need to prove that it is capable of developing such manufacturing capacity rapidly but with limited engineers. So for now, maybe investors should keep their eyes on the current market leaders. And there’s one company in particular that investors should keep on their radar. 

TSMC: The king of chips

Dual-listed Taiwan Semiconductor Manufacturing Company (TWSE: 2330) (NYSE: TSM), better known as TMSC, is a semiconductor manufacturer based in Hsinchu County, Taiwan. The company is unique in that it allows its customers to design its computer chips. Then, TSMC utilises its technologies and tools to manufacture those chips. 

This business model gives it the ability to work with a range of companies around the globe, both big and small. This has also provided it with an edge over its competitors, meaning its share price has also historically outperformed them.

Recently, the company has shifted its focus and attempted to expand and dominate new markets. The PC market is one such example. Two of the world’s biggest PC chip makers, AMD and NVIDIA, use TSMC’s fabs.

The company’s headstart in the market could allow it to become AMD and NVIDIA’s only fab. In that scenario, it’s very likely that TSMC will be able to expand its current market share of 48% dramatically. 

This aggressive market expansion, coupled with the incoming 5G market, has set TSMC on a path of even greater growth. Management at TSMC is confident that the company will see a compound annual growth rate (CAGR) of 5% for revenues between 2017 and 2021. 

Foolish takeaway 

While a potential chip market emerging in India is certainly something to keep an eye on, it’s not something investors should be worried about quite yet.

Based on its current level of infrastructure, its unlikely India will be able to unseat dominant market players like TSMC. At this point in the 5G revolution, it would be smarter for investors to keep an eye on these dominant players. 

With 5G increasing the number of semiconductors used in electronics, established chip makers have a chance to grow.  And given its versatile business model and current market prospects, TSMC is in a good position to benefit. 

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Alex Perry doesn’t own shares in any companies mentioned.