The Semiconductor industry is an essential foundation for our daily lives and has significant implications for how everyone connects with the rest of the world. It also has probably one of the most complex and globalized supply chains among all industries. A typical semiconductor device is manufactured in enormous fabs located in Taiwan and Korea, with equipment made in the US and Netherlands, critical materials from Japan, and tested and packaged in Southeast Asia.

There are many “choking points” in the supply chain, from Japan’s near-monopoly in the photoresist, and ASML’s monopoly in lithography equipment, to TSMC’s near-monopoly in leading-edge manufacturing. Any large-scale disruption in these key choking points will likely put the entire supply chain on a halt. In a world where geopolitical tension seems to be rising, the chances of further supply chain disruption are increasing. Intel CEO Pat Gelsinger stated that an investment in Intel is a hedge against geopolitical instability. We don’t entirely agree with this statement, but it is undeniable that geopolitical risk needs to carry a heavier weight in any investment decision-making process.

We are still thinking through the implications of all these rising tensions. It is a challenging exercise, and we don’t have a clear answer yet, but the de-globalization of the supply chain seems inevitable. If you have any thoughts, let us know.