Hacker News Reader

Hacker News

Comment by tikkun | Hacker News Reader

Full thread

tikkun

Key quotes:

---

Buffet:

“I don’t like its location, and I’ve reevaluated that.”

“I feel better about the capital that we’ve got deployed in Japan than in Taiwan”

“[TSMC is] one of the best-managed companies and [most] important companies in the world.”

“There’s no one in the chip industry that’s in their league, at least in my view”

“Marvelous people and marvelous competitive position and everything, [but] I’d rather find it in the United States.”

Buffett said his reassessment of the company was in “light of certain things that were going on.” He had previously pointed to geopolitical tensions as a concern.

---

TSMC is a key supplier of many companies, including Nvidia.

Not an ideal situation.

What do people expect plays out over the next few years?

View on HN

> What do people expect plays out over the next few years?

China fantasy version: China takes Taiwan and TSMC and everybody minds their own business. China miraculously converts this move into de facto monopoly. America can't get chips and tries to negotiate with China's tight new ally Mexico, losing California in the process! Holy sh*!

Maybe more real: China takes TSMC like a chess piece, tries to put it back on the board like in Xia...Shogi (sorry, my Japanese is better here). Except somehow (sanctions, brain drain, sabotage, etc) the piece metaphorically crumbles to ash. Buffett is still so very glad to be out.

Another one: Taiwan and foreign partners with lots to lose like US, Japan, and SK successfully turn Taiwan into a meat grinder. TSMC becomes a godforsaken piece of charred land. Miraculously a very-TSMC-like corporation appears split between those countries with some kind of Taiwanese stake as well.

Lots of possibilities to think about. Could happen in the next 5-20Y rather than a few though. WW2 for example had a very long build up from expeditionary moves to the bigger strategic conflict stuff if you look from the Japanese perspective, and this pattern has a lot of benefits to China given factors like US administration churn, etc.

Interesting how none of these imagined scenarios involve China not attacking Taiwan. Like, for example, Xi dies slightly earlier than expected and the next, younger, head of state doesn't have the "Oh god I need to cement my 'legacy' before I turn 90 years old" problem and can indefinitely kick the Taiwan can down the road.

That would be a great scenario but people were hoping that about Putin and unfortunately it didn’t happen in time to save Ukraine.

Also we don’t know if whoever follows Xi will be better or worse.

The fact that Putin and Xi are close and Putin made a move unthinkable a few years ago shows that these autocrats mean serious business. It's not some fiction novel story anymore.

Or China invades Taiwan and Twaiwan beats them back. As we have seen it isn't always as easy as one might think.

In context of the article, I think this scenario would still be expected to bring the market cap of TSMC to near-zero. I believe GP's second scenario was intended to capture the predicted realities of a Taiwanese military victory.

If you think China's leadership will become less bellicose after it's current dictator dies, than you are a very optimistic person.

Ahhh, I mean there has historically been an ebb and flow in the focus of Chinese leaders. Some are outward focused, some are more domestically focused, some are more interested in legacy, some are more interested in financial overhauls. Yada yada.

Yesterday, I read something in the FT where it was suggesting a lot of Chinese leaders resent the west for goading it into attacking Taiwan. The problem is the west isn't doing that, but when China acts as though it is, it escalates tensions, and the west responds in-kind. The obvious solution for China is don't attack Taiwan, but Xi thinks he's entitled to be the leader that reunifies China. He lacks Deng Xiaoping's patience.

Taiwan's chip fabs are not the only reason that Taiwan is strategically key to any country that is not CCP. Enormous amounts of shipping, especially to/from Japan sail through those straits, and ceding control to CCP is not a viable strategic option.

Even if TMSC and other fabs are entirely moved off Taiwan, or reduced to Bhakmut-style smoking rubble, CCP will still have a serious fight on it's hands to gain control of Taiwan.

I tell my friends and family, "If you ever see a headline saying Taiwan is getting blockaded, or receiving airstrikes, or whatever it may be, drop what you are doing and run to the nearest Apple Store and buy everything you can afford. If you still have money, go to every Best Buy and repeat. Anything Apple, along with Game Consoles and Nintendo Switch Game Cards, will be among the worst affected. If it doesn't work out, you'll sell it for only a 10%-20% loss. If it does work out, it will be years before you can buy those products new again."

Especially Apple. Apple has an extremely short production buffer. Allegedly, they have complete inventory turnover every five days. https://www.theverge.com/2020/3/13/21177024/apple-just-in-ti...

I suspect the temporal order will be reversed. From what I hear, China will have to spend months amassing troops and material near the coast, in a way which cannot be hidden, giving the world at least 3 months to "prepare".

I expect speculators will deplete Apple Stores' JIT stocks well before any belligerence begins. Some of those speculators may place their bets too early and lose money.

Hearing from Chinese from China ppl they think western media likes pushing the narrative of using force.

They think most likely scenario is through political means. Kuomintang is already Pro Beijing.

https://apnews.com/article/china-fighter-jets-harassment-tai...

> China’s military flew 38 fighter jets and other warplanes near Taiwan, the Taiwanese defense ministry said Friday, in the biggest such flight display since the large military exercise in which it simulated sealing off the island earlier in April.

I'll buy that Chinese in China have that view, but flying 38 fighters near Taiwanese airspace is China actually using force.

At the same time, I do see China's larger gripe. Between Japan, South Korea, Taiwan, The Philippines, and Singapore, China's access to the open seas is boxed-in by western allies. Russia has a similar gripe with a warm-water port in Crimea and NATO slowly closing in on Russia by growing the alliance east.

> Russia has a similar gripe with a warm-water port in Crimea …

Russia has multiple ports on its own black sea coast and before 2014 was building them out, especially Novorossiysk, to host the Black Sea Fleet, for when the lease of Sevastopol runs out.

Yea I totally agree. That’s literally the thing I thought about as a rebuttal. This Johnny Harris video elaborates on it as well https://youtu.be/VNZ0so0LCoM

But at the same time. You would think that if China does in fact believe Taiwan is theirs, then why would they bomb their own (eg. valuable TSMC, etc) infrastructure vs play the long game and take over politically.

Also, their sorties are more like a dog barking. It’s showing force, like North Korea doing those parades and launching missiles.

political means like HK police crackdown

The US should offer to pay for relocation of all TSMC personnel and rebuilding of all fabs here on US soil. I'm not sure there's much of an upper limit to what this would be worth. $2B? $10B? Something like that. Of course the patriots won't want to leave - and rightly so. It's their home, and democracy is worth defending against autocracy. But the offer should be made, IMHO

EDIT: Estimate is off by 100x. I also agree that Taiwan would not like to lose the leverage TSMC gives them. I still think the offer should be made.

Perhaps there's an argument to be made about U.S. hegemony when such proposals concerning the strategic assets of another country are considered. What if we Europeans devised a plan to acquire all strategic manufacturing assets from the U.S. - including tech, military, and energy sectors - along with their personnel, and relocated them to the EU? Wouldn't the federal government likely have something to say about that?

We call that Capitalism. If you don't have a plan to stop it, assume it's going to happen. I'd like to refer you back to the documentary idiocracy. There is line in that film that seems to resonate with many humans especially Americans, "I like money, you like money too? We should hang out"

I'm not buying free market capitalism with regards to strategic resources of another country. If 'we call that capitalism' is all it took, the US wouldn't need the military it has. Again, this feels like a simplistic view about a country with its own vision of the future...

You should because that's what these companies or "resources" are actually thinking. If you asked the CEO or shareholders who the company belongs to they'll claim it's theirs and that where it operates from is irrelevant. The US has the military it has because of capitalism, warfare costs tremendous amounts of money and resources and so a lucrative market was birthed.

It's just impossible to get my point across to some people. What happens when a company gets too big and is split by the government? Do the CEO and the shareholders go request this?

What? You think the Taiwanese government couldn't prevent US purchase of TSMC because capitalism?

https://en.wikipedia.org/wiki/Committee_on_Foreign_Investmen...

> We call that Capitalism. If you don't have a plan to stop it, assume it's going to happen.

Maybe that still holds true for Europe since the US doesn't want to piss of their strategic allies too much, but unless you're living under a rock, you've seen how that works for other less friendly countries.

Doing so would endanger the rest of Taiwan.

If America pays for this because of fear of Chinese bullying, what is next? If you let the Chinese know America will pay, and people can flee and the Chinese can take what is left behind, what else does America let the Chinese take over? Middle East, Africa, South America?

I don't think being a coward and running away from a bully is the right thing to do.

>Africa

Er, you might consider looking into China's so-called Belt and Road [0] initiatives with regards to Africa. The boomer-era IMF strategy of predatory lending to third-world countries with an eye to controlling export infrastructure via impossible loans has been noted and improved upon by the Chinese. IMO "we" (read: the Pax Americana) have already handed over much of Africa.

[0] https://en.wikipedia.org/wiki/List_of_projects_of_the_Belt_a...

Do you think the Taiwan government would allow that?

TSMC is a key reason why anyone pays attention to that part of the world and only a fool would let that leverage slip away.

Of course US could force their hand, which would be equal to putting out an ad in NYT telling Xi to do whatever he wants to the island.

If only the US military had incredible amounts of armor and defense systems to trade with them to ensure their safety. Right?

You mean... the US could offer military support in exchange for moving away the things that makes military support worthwhile?

Yeah, I don't expect Taiwan to fall for something like this.

TSMC is owned by the state, they can have their cake and eat it too. Send low nm process to the US in exchange for military hardware and continue to own the IP which means they could withhold it from the United States during time of war unless they have the support of the United States. It’s not clear why this can’t work, it’s what they are currently doing…

> Do you think the Taiwan government would allow that?

Neither would China!

$10B isn’t even in the ballpark. We should be willing to pay $1T to fully onshore TSMC, if that were magically an option.

Bro, are you upping the bid on yourself?

You're at least an order of magnitude out. They have 8 fabs in Taiwan, assume $10-20B each, so at least $80-160B, probably significantly more.

Throw in the few they have in China to...

And then the rest of the supply chain that's right there.

Exactly, and scale up the whole supply chain needed to build this all at once. You can quickly convince yourself it's a n trillion dollar exercise.

And maybe buy Greenland while they are add it /s

A single 3nm fab is ~$20B. In the last decade TSMCs investments in Taiwan capacity (5nm-28nm) exceed $100B. All the other fabs and infrastructure many $100Bs. Not including contractors or support personnel TSMC employs ~50k in Taiwan. It would be an enormous undertaking.

Is it not possible to move existing equipment?

Seems starting with moving the most modern lines out of harms way, and building all new lines not on Taiwan, they would soon reach a state where what is left behind is multiple generations old, so worth far less

Certainly a good idea even if moving nothing, to also build nothing new within China's reach.

Isn't that how a fab gets built? Equipment is moved to the site and assembled? Seems it would be more expensive due to needing to disassemble plus you'd be offline a fab.

Yes, of course moving would be an extra expense and involve downtime. This would be weighed against the risk of losing it all due to CCP invading, either through destruction or just being seized.

[Total Equip Loss Cost] * [Probability of Loss]

[Additional Cost of Moving] + [Additional Cost of Downtime]

That might cover one or two 5nm fabs - at least according to figures provided in this McKinsey report: https://www.mckinsey.com/industries/industrials-and-electron...

I believe TSMC will diversify away from Taiwan and they will probably need to do it as quickly as they can. This is already happening; they are building in Arizona, but it takes a while to build a foundry and get it running. They should have started a decade ago. Hong Kong was probably the catalyst today. Companies who rely on TSMC will also need to diversify as much as possible as quickly as they can incase TSMC can't. I'm not sure if Berkshire doesn't think they can do it, or just doesn't like the risk. They seem fairly risk-averse.

Once this happens China will probably feel more emboldened to take Taiwan because US industry won't be so reliant on it and less likely to intervene. I'm not saying the US won't, but they would be less incentivized economically and in regards to self interest. I don't think the populace has the stomach for a long protracted, potentially nuclear war over Taiwan.

China will become significantly more isolated on the global scale if this happens, but they seemed determined to do it. They've fallen into a single-man dictatorial power structure under Xi. The China global economic experiment seems to have failed. It's a waiting game.

Want to point out that the global economic importance of Taiwan will decrease if TSMC is able to diversify away from Taiwan in any significant manner, meaning China stands to gain significantly less economically by invading Taiwan. Most of Taiwan's importance currently seems to be directly related to their position as the primary supplier of chips for global corporations.

Yes, you are absolutely correct economically, but they deem it to be a national honor thing. Dictators turn to nationalism when they become unpopular.

https://www.bbc.com/news/world-asia-china-59900139

No. China has wanted Taiwan since before TSMC was major factor.

This is about geopolitics, and fulfilling the destiny of the Party/Nation that has for decades been embarrassed that their (in their eyes) territory was held by others and supported by the West.

Sorry, I should've specified that I was specifically talking about potential economic incentives for China. I am aware to a lesser degree that they wanted the land for alternate reasons.

Putin showed that the autocrats mean business. Xi is cut from the same cloth.

Reply on news.ycombinator.com