Geopolitical Tensions: Impact on the Semiconductor Industry

Supply Chain Disruptions and Geopolitical Tensions

Geopolitical tensions are causing significant supply chain disruptions in the semiconductor industry, leading to increased raw material prices (QCOM), export restrictions (NVDA), and supply chain shortfalls (AMD). Maintaining good geopolitical relations is crucial for continuity (ASML), and there is a growing need for geo-diverse capacity for resilience (INTC).

"In addition, natural disasters, effects of climate change, acts of war or other geopolitical conflicts may result in disruptions in transportation, distribution channels and supply chains and significant increases in the prices of raw materials." --- (QCOM, sec filing, 2024/Q2)

"Given the increasing strategic importance of AI and rising geopolitical tensions, the USG has changed and may again change the export control rules at any time and further subject a wider range of our products to export restrictions and licensing requirements, negatively impacting our business and financial results." --- (NVDA, sec filing, 2025/Q1)

"So you saw that with supply chain shortfalls during the pandemic. You see that with geographic political tensions across the world." --- (AMD, conference, 2024/05/29)

"So good results despite the geopolitical negatives. And we shareholders understand the dilemma of ASML, your dependency on continuity of good relations with the U.S, with CYR and other key elements in the chain of the most innovative components crucial for the completion of those brilliant, now the EUV and now the EUV machines." --- (ASML, event transcript, 2024/04/24-26)

"And we feel very confident that the secular trend around compute growth, right, getting to $1,000,000,000,000 if you will in semiconductors, foundry growth and the need for leading node capacity for most of the fabless companies and also the need for geopolitical geo diverse capacity for resilience is a trend that creates has huge amount of headroom for shareholder value creation that if we execute, we can be we can reward our investors with." --- (INTC, conference, 2024/06/12)

Impact of Trade Policies and Tariffs

Trade policies and tariffs, particularly between the U.S. and China, have significantly impacted the semiconductor industry. Companies like Qualcomm face increased costs, restricted business transactions, and reduced revenues due to these political actions. Additionally, import tariffs affect customer expenses, and Chinese regulations on fund flows further complicate financial operations.

"Political actions, including trade protection and national security policies of the U.S. and Chinese governments, such as tariffs, bans or placing companies on restricted entity lists, have in the past, currently are and could in the future limit or prevent us from transacting business with certain of our Chinese customers or suppliers, limit, prevent or discourage certain of our Chinese customers or suppliers from transacting business with us, or make it more expensive to do so." --- (QCOM, sec filing, 2024/Q2)

"Normally, if there's an import tariff, the customers will be responsible for that, but no discussion, nothing." --- (TSM, earning call, 2024/Q2)

"Additionally, supply and costs of raw materials, equipment and other products may be negatively impacted by trade and/or national security protection policies, such as tariffs, or actions by governments that limit or prevent us from transacting business with certain countries or companies or that limit or prevent certain companies from transacting business with us, or trade tensions, particularly with countries in Asia." --- (QCOM, sec filing, 2024/Q2)

"Further, political actions, including trade and/or national security protection policies, or other actions by governments, particularly the U.S. and Chinese governments, have in the past, currently are and could in the future limit or prevent us from transacting business with certain of our customers, limit, prevent or discourage those customers from transacting business with us, or make it more expensive to do so, any of which could also significantly reduce the revenues we derive from these customers." --- (QCOM, sec filing, 2024/Q2)

"Finally, government policies in China that regulate the amount and timing of funds that may flow out of the country have impacted and may continue to impact the timing of our receipt of, and/or ability to receive, payments from our customers and licensees in China, which may negatively impact our cash flows." --- (QCOM, sec filing, 2024/Q2)

Regional Dependencies and Geopolitical Influences

Geopolitical tensions have made semiconductors a strategic issue, impacting access and operations (ASML). Companies like Intel must navigate these dynamics (INTC), influencing capital allocation and M&A strategies (QCOM). Regional cost challenges, such as higher electricity costs in Taiwan, also arise (TSM), while China's market share in semiconductors grows significantly (ASML).

"And of course, also, it will be a driver, it is a driver in the geopolitical domain, and we are subject to that also because of everything I just said, it is very clear that the importance of semiconductors now becomes a geopolitical strategic issue. Not having access to semiconductors for the right" --- (ASML, event transcript, 2024/04/24)

"Obviously, there's much more competitive intensity in our business. There is geopolitical dynamics that makes we have to navigate." --- (INTC, conference, 2024/06/12)

"It seems like that leaves a lot of room, right? How should we think about capital allocation, particularly in this geopolitical backdrop, how to think about M and A and your intent to sort of do any major transactions?" --- (QCOM, conference, 2024/05/21)

"At the same time, we face rising cost challenges due to increasing process complexity, a leading load, higher electricity costs in Taiwan, global fiber expansion in higher cost regions, and other cost inflation challenges." --- (TSM, earning call, 2024/Q2)

"In terms of end use, you see that logic really constituted the lion's share of the sales as I also demonstrated to you in the growth that we saw on the previous slide. And regionally, obviously, the one thing that stands out here is the increase in China, China going from 14% to 29%." --- (ASML, event transcript, 2024/04/24)

Company-Specific Impacts

Geopolitical tensions are impacting semiconductor companies like Qualcomm, ASML, and Intel. Qualcomm faces potential procurement issues and revenue pressures due to supplier shifts and market concentration. ASML is affected by export restrictions to China, while Intel's revenue is constrained by supply chain disruptions.

"For example, if any key supplier of technologies and intellectual property to the semiconductor industry was sold to one of our competitors, it could negatively affect our ability to procure or license such technologies and intellectual property in the future, at all or upon acceptable terms, which could have wide-ranging impacts on our business and operations." --- (QCOM, sec filing, 2024/Q2)

"of matters that would be impacting the company's going concern. Think about the industry developments and also the export restrictions to China." --- (ASML, event transcript, 2024/04/24)

"Q2 client revenue is constrained by wafer-level assembly supply, which is impacting our ability to meet demand for our core ultra-based AI PCs." --- (INTC, earning call, 2024/Q1)

"Further, the concentration of device share among a few companies, and the corresponding purchasing power of these companies, may result in lower prices for our products, which could have an adverse effect on our revenues and margins." --- (QCOM, sec filing, 2024/Q2)

"A reduction in sales of premium-tier devices, a reduction in sales of our premium-tier integrated circuit products (which have a higher revenue and margin contribution than our lower-tier integrated circuit products), a shift in share away from OEMs that utilize our premium-tier products, or a shift in consumer demand in favor of refurbished or secondhand devices, would reduce our revenues and margins and may harm our ability to achieve or sustain expected financial results." --- (QCOM, sec filing, 2024/Q2)

Strategic Responses by Companies

Semiconductor companies are adopting various strategic responses to geopolitical tensions. Qualcomm is focusing on entering new markets and addressing new opportunities, while Intel is enhancing supply chain resiliency through strategic capital transactions. ASML is geographically diversifying its fabs, and TSM is collaborating closely with strategic customers to develop specialized technology solutions.

"Additionally, we may not be successful in entering or expanding into new sales or distribution channels, business or operational models, geographic regions, industries and applications served by or adjacent to the associated businesses or in addressing potential new opportunities that may arise out of our strategic acquisitions." --- (QCOM, sec filing, 2024/Q2)

"This highly strategic capital transaction is among the largest private investments of its kind and showcases Apollo's ability to provide creative, scaled capital solutions to leading corporations and infrastructure, and to contribute to supply chain resiliency." --- (INTC, press release, 2024/06/04)

"plans. These fabs are spread geographically and are strategic for our customers." --- (ASML, earning call, 2024/Q2)

"For us, actually, our strategy at a mature node is work closely with our strategic customers to develop specialty technology solution to meet their requirement." --- (TSM, earning call, 2024/Q1)

"The misappropriation, theft, misuse, disclosure, loss or destruction of the technology, intellectual property, or the proprietary, confidential or personal information, of us or our employees, customers, licensees, suppliers or other third parties, could harm our competitive position, reduce the value of our investment in research and development and other strategic initiatives, cause us to lose business, damage our reputation, subject us to legal or regulatory proceedings, cause us to incur other loss or liability and otherwise adversely affect our business." --- (QCOM, sec filing, 2024/Q2)

Future Outlook and Predictions

TSM's strong revenue performance and Intel's evolving foundry relationships suggest a resilient semiconductor industry, despite geopolitical tensions. However, AMD and ASML highlight uncertainties and risks that could impact future results, indicating a cautious but optimistic outlook.

"C. C. Wei: Thank you, Wendell. Good afternoon, everyone. First, let me start with our near-term demand outlook. We concluded our second quarter with revenue of U.S. dollar $20.8 billion, above our guidance in U.S. dollar terms." --- (TSM, earning call, 2024/Q2)

"So we do fully expect that those founder relationships, super important for us in the future, but they'll play a less critical or less substantial portion of the overall P and L as we go through the period. So peaking this year and next year and then moderating over time, But we've built into the margin assumptions for the product groups some continued use of external foundries." --- (INTC, event transcript, 2024/04/02)

"and uncertainties, many of which are difficult to predict and generally beyond AMD's control, that could cause actual results and other future events to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements." --- (AMD, press release, 2024/06/02)

"and our future financial results and readers should not place undue reliance on them." --- (ASML, press release, 2024/07/17)

"Such statements are subject to certain known and unknown risks and uncertainties, many of which are difficult to predict and generally beyond AMD's control, that could cause actual results and other future events to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements." --- (AMD, press release, 2024/04/30)