The World Relies on One Chip Maker in Taiwan, Leaving Everyone Vulnerable

TCSM is almost a monopoly in some sectors fo the semiconductor industry. (WSJ,June 2021) What does the 5-forces model say about its prospects for earning a high rate of return? What do you see as its strategy?

Here are some money quotes.

1. "Its technology is so advanced, Capital Economics said, that it now makes around 92% of the world’s most sophisticated chips, which have transistors that are less than one-thousandth the width of a human hair. Samsung Electronics Co. makes the rest. Most of the roughly 1.4 billion smartphone processors world-wide are made by TSMC.
   
   It makes as much as 60% of the less-sophisticated microcontrollers that car makers need as their vehicles become more automated, according to IHS Markit, a consulting firm."
2. "Semiconductors have become so complex and capital-intensive that once a producer falls behind, it’s hard to catch up. Companies can spend billions of dollars and years trying, only to see the technological horizon recede further.
   
   A single semiconductor factory can cost as much as $20 billion. One key manufacturing tool for advanced chip-making that imprints intricate circuit patterns on silicon costs upward of $100 million, requiring multiple planes to deliver."
   
   TSMC’s own expansion plans call for spending $100 billion over the next three years. That’s nearly a quarter of the entire industry’s capital spending, according to semiconductor research firm VLSI Research."

How ESG Stocks Perform Depends on Who Ranks Them

Determining how ESG stocks perform depends on weights used for the various inputs. (WSJ, June 2021) The market cap of a firm is easy to measure; how well it is meetings its ESG goals is not. As a result, determining whether or not the stocks of companies with high ESG scores outperform the stocks of companies with low ESG scores is difficult.

Palantir and DoorDash CEOs Top List of Biggest Pay Packages in 2020

 

Do the compensation packages align the interests of the two CEOs with owners'? (WSJ, June 2021) 

Questions from WSJ Weekly Review:

• From the article: “Alexander Karp, the chief executive officer and a co-founder of Palantir…received compensation valued at $1.1 billion last year, including $798 million in options and $296 million in restricted stock…” The board of directors of Palantir agreed to compensate Alexander Karp with options to buy Planatir stock. Why would the board pay Karp with options to buy Palantir stock rather than pay him a salary?
• From the article: “Shortly before DoorDash went public…the meal-delivery company awarded co-founder and CEO Tony Xu restricted shares…valued at more than $400 million...” Explain what “going public” means. Why would the founders of DoorDash choose to become publicly owned?
• Prior to becoming a publicly owned firm, could DoorDash experience a principal-agent problem? After become a publicly owned firm, could DoorDash experience a principal-agent problem? Briefly explain your answers.
• From the article: “Mr. Xu…started DoorDash with Stanford University classmates in 2013. The company…had $2.9 billion in revenue last year and reported a loss of $461 million.” Why would the board of directors award CEO Tony Xu a large compensation package when DoorDash suffered a loss of $461 million?
• From the article: “Ambitious, all-or-nothing equity packages are intended to keep and motivate leaders …according to Terry Adamson, a managing director at Technical Compensation Advisors. ‘They’re so levered and so high-risk…They either create massive awards or they create nothing.’” Briefly explain what is meant by an “all-or-nothing” equity package. Briefly explain why an equity package would “create massive awards” or “create nothing.”

Does a walled garden = a castle surrounded by a moat?

This analysis of Apple mentions "Steve Jobs’ (sic?) 2010 vision to 'tie all our products together so we further lock customers into our ecosystem.'” (WSJ, June 2021)

"It is a fallacy to think that if you are seeking profits, you are not serving people"

Pat Toomey defends capitalism here. A money quote follows.

"It is a fallacy to think that if you are seeking profits, you are not serving people. In fact it’s the exact opposite. Business can only profit when they satisfy customers and that can only be achieved with a satisfied workforce and good relationships with the community."

What is a market?

This article illustrates the difficulty of deciding where one market ends and another one begin one begins. (WSJ, 2020).

Why 20% of working days will be from home

"COVID-19 drove a mass social experiment in working from home (WFH). We survey more than 30,000 Americans over multiple waves to investigate whether WFH will stick, and why. Our data say that 20 percent of full workdays will be supplied from home after the pandemic ends, compared with just 5 percent before. We develop evidence on five reasons for this large shift: better-than-expected WFH experiences, new investments in physical and human capital that enable WFH, greatly diminished stigma associated with WFH, lingering concerns about crowds and contagion risks, and a pandemic-driven surge in technological innovations that support WFH. We also use our survey data to project three consequences: First, employees will enjoy large benefits from greater remote work, especially those with higher earnings. Second, the shift to WFH will directly reduce spending in major city centers by at least 5-10 percent relative to the pre-pandemic situation. Third, our data on employer plans and the relative productivity of WFH imply a 5 percent productivity boost in the post-pandemic economy due to re-optimized working arrangements. Only one-fifth of this productivity gain will show up in conventional productivity measures, because they do not capture the time savings from less commuting." https://www.nber.org/papers/w28731#fromrss