Tough road ahead for U.S. firms trying to cut reliance on Taiwan chipmakers

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Taiwanese chipmakers are ahead of their international rivals and it will be tough for U.S. tech companies to reduce their reliance on Taiwan, said Sebastian Hou from CLSA.

Tech firms like Apple, Amazon, Google as well as Qualcomm, NVIDIA and AMD rely heavily on Taiwanese contract manufacturers to produce up to 90% of their chips, according to Hou, who is managing director and head of tech research at the brokerage firm.

“It’s going to be a challenging and long journey for them to diversify away, and thinking about how long it takes for the chip development and cooperation — it’s going to take a while,” he said Monday on CNBC’s “Street Signs Asia.”

Semiconductors are used in everything, from smartphones and computers to cars as well as home appliances.

While the United States dominates the global semiconductor market share by revenue, Asia is the manufacturing powerhouse, according to a recent report from Bank of America. Asian countries produce more than 70% of global semiconductors — Taiwan and South Korea, in particular, have established unrivaled positions in high-end chip manufacturing capacity, the report said.

A man walks past TSMC’s logo at the company’s headquarters in Hsinchu, Taiwan. TSMC is the world’s largest semiconductor foundry.

Sam Yeh | AFP | Getty Images

Upside for Taiwan chipmakers

The brokerage has an “outperform” rating on UMC and a price target of 62 New Taiwan ($2.18), a 16.76% upside from last week’s close.

Hou explained that between the two stocks, TSMC has a higher risk — due to a wider spread between its target price and current share price — but it offers greater returns. He added that the price target is “highly achievable” since the company is expected to maintain technology leadership over the next five years and customers are set to rely heavily on it.

China’s SMIC lagging



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