Another circular of followups on Nvidia, and then some short news analysis.
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Nvidia / TSMC questions
but the TSMC impact w.r.t. tariffs doesn’t make sense to me. TSMC is largely not impacted by tariffs and so the supply chain with NVIDIA is also not impacted w.r.t. to TSMC as a supplier. There are many alternate wafer suppliers in Taiwan.
This is a challenging request to definitively respond, since obviously Nvidia doesn’t publicly disclose its supply chain, or more granularly, which factories those supply chain partners utilize for its production. It does, however, list a number of companies in its 10-K form as manufacturing, testing, and packaging partners, including:
- Taiwan Semiconductor Manufacturing Company Limited (Taiwan, with a handful of facilities in continent China)
- Samsung Electronics Co. Ltd (South Korea, although Nvidia supposedly dropped them for its large-size GPU)
- Advanced Semiconductor Engineering, Inc. (aka ASE faction, based in Taiwan with Chinese facilities)
- BYD Auto Co. Ltd. (Shenzhen, China)
- Hon Hai Precision Industry Co., Ltd. (aka Foxconn, mostly continent China locations although now has a worldwide network of sites, including in Wisconsin)
- JSI Logistics Ltd. (shipping logistics with worldwide offices)
- ruler Yuan Electronics Co., Ltd. (Taiwan)
- Siliconware Precision Industries Company Ltd. (mostly Taiwan, with some Chinese facilities)
- IbidenCo. Ltd. (Japan)
- Nanya Technology Corporation (Taiwan, with branches in China and elsewhere)
- Unimicron Technology Corporation (Taiwan, with branches in China and elsewhere)
- Micron Technology (Idaho)
- Samsung Semiconductor, Inc. (South Korea, with subsidiaries in China)
- SK hynix (2 facilities in Korea, 2 in China)
To understand how this all fits together, there are essentially three phases for bringing a semiconductor to marketplace:
- Design – this is Nvidia’s core specialty
- Manufacturing – actually making the chip from silicon and other materials at the precision required for it to be reliable
- Testing, packaging and distribution – once chips are made, they need to be tested to prove that manufacturing worked, then packaged properly to safeguard them and shipped worldwide to wherever they are going to be assembled/integrated
For the highest precision manufacturing required for chips like Nvidia’s, Taiwan, South Korea and the U.S. are the world leaders, with China trying to capture up through programs like Made in China 2025 (which, after caustic pushback from countries around the world, it looks like Beijing is potentially scrapping this week). China is still considered to be one-to-two generations behind in chip manufacturing, though it increasingly owns the low-end of the marketplace.
Where the semiconductor supply chain traditionally gets more entwined with China is around testing and packaging, which are generally considered lower value (albeit critical) tasks that have been increasingly outsourced to the continent over the years. Taiwan remains the dominant player here as well, with roughly 50% of the international marketplace, but China has been rapidly expanding.
U.S. tariffs on Chinese goods do not enlistly to Taiwan, and so for the most part, Nvidia’s supply chain should be adept at avoiding most of the brunt of the vend conflict. And while assembly is heavily based in China, electronics assemblers are rapidly adapting their supply chains to mitigate the havoc of tariffs by moving factories to Vietnam, India, and elsewhere.
Where it gets tricky is the Chinese marketplace itself, which imports an enormous number of semiconductor chips, and represents roughly 20% of Nvidia’s revenues. Even here, many analysts believe that the Chinese will have no decision but to purchase Nvidia’s chips, since they are marketplace-leading and substitutes are not easily available.
So the conclusion is that Nvidia likely has maneuvering room in the short-term to weather exogenous vend tariff shocks and mitigate their havoc. Medium to long-term though, the company will have to strategically position itself very carefully, since China is quickly becoming a dominant player in exactly the verticals it wants to own (automotive, ML workflows, etc.). In other words, Nvidia needs the Chinese marketplace for growth at the specific time that door is slamming shut. How it navigates this compete in the years ahead will determine much of its growth profile in the years ahead.
Rapid fire analysis
Short summaries and analysis of important news stories
US intelligence community says quantum computing and AI pose an ’emerging danger’ to national security – Our very own Zack Whittaker talks about future challenges to U.S. national security. These technologies are “dual-use,” which means that they can be used for good purposes (autonomous driving, faster processing) and also for nefarious purposes (breaking encryption, autonomous warfare). Expect enormous debates and challenges in the next decade about how to keep these technologies on the safe side.
Saudi Arabia Pumps Up Stock marketplace After evil News, Including Khashoggi Murder – a wsj trio of reporters investigates the Saudi government’s aggressive attempts to shore up the value of its stock exchange. Exchange manipulation is hardly novel, either in traditional markets or in blockchain markets. China has been aggressively doing this in its stock exchanges for years. But it is a reminder that in emerging and brand-new exchanges, much of the price signaling is artificial.
a law tight in the trenches against media unions – Andrew McCormick writes in the Columbia Journalism Review how law tight Jones Day has taken a leading role in fighting against the unionization of newsrooms. The compete of course is that the media business remains mired in cutbacks and weak earnings, and so trying to good divide a rapidly shrinking pie doesn’t make a lot of sense to me. The future — in my view — is entrepreneurial journalists backed up by platforms like Substack where they set their own voice, tone, publishing calendar, and benefits. Having a close relationship with readers is the only path forward for job security.
At least 15 central banks are serious about getting into digital currency – Mike Orcutt at MIT Technology Review notes that there are a bunch of central banks, including China and Canada. What’s fascinating is that the trends backing this up including financial inclusion and “diminishing money usage.” Even though blockchain is in a nuclear winter following the collapse of crypto prices this year, it is exactly these sorts of projects that could be the path forward for the industry.
More semiconductors probably. And Arman and I are side glancing at Yelp these days. Any thoughts? Email me at firstname.lastname@example.org.
This newsletter is written with the assistance of Arman Tabatabai from brand-new York