Warren Buffett's holding company, Berkshire Hathaway, cut its position in TSMC by 86%, according to a CNN report citing a regulatory filing. The investment firm also purchased additional Apple stock. It's not clear whether Berkshire dumped TSMC stock because it expects softening demand for consumer electronics and personal computers, or because it's concerned about increased risks of China invading Taiwan, which would threaten the value of the world's largest contract maker of chips.
Berkshire Hathaway Dumps TSMC
According to a report from Reuters, Berkshire Hathaway held $4.1 billion in 60 million American depository shares of TSMC stock last November after increasing its positions significantly. After selling 86% of its shares, the company now holds 8.3 million American depository shares, worth $618 million, according to its disclosure to the SEC. TSMC's stock fell by 4% on Wednesday, after the filing was made.
As an investment company, Berkshire Hathaway naturally does not disclose why it buys or sells shares of certain companies. However, it should be noted that when Warren Buffet's company bought TSMC stock last November, the world's No. 1 foundry seemed immune to softening demand for chips aimed at consumer electronics. But recently the company has indicated the demand for its services will be lower in 2023 than it was last year.
As Berkshire Hathaway dumped TSMC shares, it increased its position in Apple — possibly because the latter tends to be less vulnerable to softening demand for consumer electronics.
Competition from Samsung, Intel
For now TSMC is the world's largest foundry with indisputable technological lead and will remain No.1 for quite a while, but there certain risks for the company, including expanded competition as well as the risk of Chinese invasion.
Samsung Foundry is also a mighty contract maker of chips, but it trails behind TSMC both in terms of available production capacity and yields on advanced nodes. But Samsung is investing tens of billions of dollars in its manufacturing capacity every year and continues to improve its fabrication processes and accelerate the pace of advancements, so, over time, it will pose a higher threat to TSMC.
Intel Foundry Services has ambitious plans to become the world's No.2 foundry and while it is hard to tell whether it will succeed, we do know that Intel has a very ambitious production node roadmap and substantial production capacity that will only get larger in the coming years.
Neither Samsung Foundry nor IFS will dethrone TSMC any time soon; it will remain the No.1 contract maker of chips as well as 'everyone's foundry' as it positions itself for the foreseeable future. But with increased competition in 2024 – 2025, TSMC will no longer be able to increase prices virtually overnight and boost its profitability. As a result, it is not cast in stone that TSMC will remain as profitable as it is today, so perhaps it makes less sense for investment companies to hold recently-bought TSMC stock for another couple of years.
Chinese Invasion Risk
There is another reason why Berkshire Hathaway may no longer want to own TSMC stock worth billions of dollars, and that's increased risk of China invading Taiwan. Earlier this month CIA director William Burns said that China may invade the island by 2027.
"As a matter of intelligence, [Xi had ordered his country’s military to be ready to invade the democratic island by 2027]," Burns said, according to RFA. "Now, that does not mean that he's decided to conduct an invasion in 2027, or any other year, but it's a reminder of the seriousness of his focus and his ambition. I wouldn't underestimate President Xi's ambitions with regard to Taiwan."
Some intelligence and military specialists said last year that China may invade Taiwan as soon as 2025. Since TSMC can produce chips on leading-edge technologies and such chips could bolster China's military potential, a top U.S. army publication last year urged TSMC to evacuate fab personnel and then destroy TSMC's fabs on the island. Taiwan's National Security Bureau then argued that, without access to advanced production tools from companies such as ASML, Applied Materials, KLA, Lam Research, and Tokyo Electron, TSMC's fabs were worthless — so there was no need to destroy them.
But whether TSMC's fabs will be seized by China, destroyed, or left without equipment, the foundry's stock will rapidly become worthless if China invades.
Whether Berkshire Hathaway is dumping stock due to short-term profitability worries, mid-term uncertainties associated with intensified competition on teh foundry market, or long-term risks associated with Chinese invasion is something only the company knows. We do know that, while TSMC will remain the world's top contract maker of semiconductors for now, its position is not nearly as secure in upcoming years as it was in 2020 - 2022.
Sanctions against China may not hurt too badly, depending on how far along companies are on their Chexit strategy.
Lot of the early moves out of China were for tariffs, which Apple really didnt care because they have a cult-like following, people are paying $1500+ for a phone and dont care about the tariff increases. Then moves increase in '20-'21 due to COVID and supply restrictions, and today the moves out of China are increasing due to government sanctions and looming war which no one is immune to and I believe is the #1 underlying issue to the stock sell-off. If I had anything invested in China, I'd be pulling it ASAP, things arent going to get any better, but much much worse!
Yep, that explanation makes no sense. Apple's put everything in one basket, China, and if there is any geopolitical escalation, Apple is toast. Further, unlike Qualcomm, all of Apple's chips are also made by TSMC in Taiwan -- Apple is TSMC's largest customer -- Apple sales accounts for as much as 30% of TSMC sales.
As pointed out by others, Samsung has been pulling out of China for almost a decade -- they closed the last smartphone factory in 2019 and they are still in process closing last few remaining business units, eg, shipbuilding/heavy industry in Ningbo, China.
Samsung (and SK Hynix, Micron, and even Intel who recently sold their Chinese NAND business to SK) does have a NAND production in Xi'an, opened not too long ago, but it would be extremely costly for both Samsung and the Xi'an's local gov't to close that now. Samsung $18+B NAND plant has enormous impact on local economy, so it doesn't make any sense for Chinese gov't to harasse them with permits. The problem is with the Biden's chip ban against China -- Samsung received a one-year reprieve from Biden's recent export restriction on chip-making equipment, but beyond that we don't know what their fate is.
That's the first "oops" I've seen from the oracle of Omaha . But the knew the writing was on the wall last March. Covid ending. Everyone upgraded. Massive inflation. Discretionary spending money gone.
According to https://www.theregister.com/2023/02/15/warren_buffet_cashes_out_of/ he looks to have made several hundred million over a few months on that investment. I wish I could make a few 'oops' like that ;-)