Taiwan Semiconductor Manufacturing Company Limited (TSM)'s Geopolitical Risks Could Weigh on Shares

Taiwan Semiconductor Manufacturing Company Limited (TSM), the world's largest semiconductor foundry, faces significant geopolitical risks that could impact its market share and share price. As geopolitical tensions escalate, particularly between the United States and China, TSMC's reliance on Taiwan for manufacturing and its dominant position in the global semiconductor industry make it a potential target for disruptions.


TSMC's dependence on Taiwan for manufacturing has raised concerns about its vulnerability to geopolitical tensions with China. The company produces the majority of the world's advanced logic semiconductors, making it a critical player in the global supply chain. Any military escalations across the strait could result in significant disruptions to TSMC's operations, impacting its supply chain and revenue streams.


To mitigate these risks, TSMC has been diversifying its manufacturing bases. The company has announced plans to build a second fabrication plant in Japan, while its Kumamoto factory will begin production this year. Additionally, TSMC is constructing advanced facilities in Arizona and Germany. This diversification strategy aims to reduce TSMC's reliance on a single location and minimize the impact of geopolitical tensions on its operations.


Geopolitical tensions influence TSMC's market share and competitive position in the global semiconductor industry. The company's dominance in advanced chips, with a more than 50% share of the overall foundry market, puts it well on track to meet or exceed its long-term targets of 15-20% growth. However, geopolitical risks could disrupt this trajectory, particularly if US policies targeting China's semiconductor industry, such as the foreign direct product rule, affect TSMC's operations and global market share.


Changes in US policy towards China could impact TSMC's supply chain and revenue streams. The Biden administration is considering implementing stricter restrictions on semiconductor technology exports, which could disrupt TSMC's supply chain and limit its access to critical components. This, in turn, could impact TSMC's revenue streams and share price.


In conclusion, TSMC's geopolitical risks could weigh on its shares as tensions between the United States and China escalate. The company's diversification of manufacturing bases is an essential strategy to mitigate these risks, but geopolitical tensions and US policies targeting China's semiconductor industry could still impact TSMC's market share and competitive position. Investors should closely monitor these developments and consider the potential implications for TSMC's share price.