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Semiconductors have become the new oil

Back in the '70s, it was oil. OPEC held the West over a barrel. They slashed output, prices went up, and they became very rich. It was also a source of geopolitical tension and even war.

A similar trend is unfolding in the semiconductor market. Semiconductors are essential to our modern way of life, powering everything from smartphones to automobiles and home appliances.

The largest semiconductor foundry companies have seen their revenues soar into the billions, reflecting the immense global demand for their products. Ironically, it is also enormously expensive to create these chip fabs – it costs as much as two US aircraft carriers to build facilities that may become obsolete in just five years.

The chart below shows how Taiwan's TSMC has dominated this market. It commands a staggering 60% market share, with nearly $17 billion in revenue. South Korea's Samsung, an integrated device manufacturer, follows with a substantial $3.4 billion in revenue. American company GlobalFoundries, Taiwan's UMC, and China's SMIC also feature prominently, each securing around 6% of the market share.

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Source: Visual Capitalist

The geopolitics here are fascinating. China has consistently threatened to unify Taiwan with the mainland by force. The war in Ukraine has also highlighted the importance of having access to semiconductors. Despite the numerical odds, Ukraine has stood up to Russia with modern Western weaponry containing advanced semiconductor chips. Meanwhile, Russia has struggled to replenish its weapons, some of which rely on semiconductors that are now very difficult to access.

Just as oil is the most important input for production in the world, so are semiconductors. They are an absolutely vital part of the supply chain for technology that our modern economies require to function. Monopolies and oligopolies, and even war over the supply of semiconductors, may occur in the decades to come.

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