Welcome to the Friday mailbag edition of The Daily Cut.
Each week, you put your questions to the Legacy Research team… and we run a selection of their best responses…
Today, former Wall Street insider turned investigative journalist Nomi Prins looks at what happens to the chipmaking sector if China makes good on its promise to “reunify” with Taiwan…
But first, a question for tech investor Jeff Brown about PayPal’s new Acceptable Use Policy (AUP).
It allows the Big Tech payments processor to fine its users for spreading misinformation… or publishing inappropriate content on social media.
What qualifies as inappropriate?
Well, that’s up to the folks at PayPal to decide.
They will fine you at their discretion. If they decide you’ve violated their policy, it could set you back $2,500… which they pull directly out of your PayPal account.
Jeff wrote about the policy last week over at his tech investing e-letter, The Bleeding Edge. And one reader wrote in wondering about an alternative…
Reader question: Hey, Jeff. I was appalled when I read your update about PayPal’s recent announcement. Can’t any business stand on its own two feet instead of going with the mainstream flow?
Ridiculous.
Do you have any suggestions for a TRUSTWORTHY online payment service?
– Shawn
Jeff’s response: I share your frustration and disappointment with PayPal.
The company defines a violation as the “sending, posting, or publishing of any messages, content, or materials that, in PayPal’s sole discretion, are harmful, obscene, harassing, or objectionable,” or “are fraudulent, promote misinformation, or are unlawful.”
PayPal execs want to take your money for the crime of spreading what they claim is “misinformation.” It’s beyond ridiculous.
PayPal has great technology. It’s one of the greatest success stories in tech of the past 20 years. But it’s doesn’t respect free speech or its customers.
And I’m not the only one who thinks so. Former PayPal president David Marcus had some choice words for the company he used to work for.
Source: Twitter
So you raise a good question, Shawn. If we can’t rely on PayPal, what are the alternatives?
Stay away from Venmo. It’s a convenient service. But unfortunately, PayPal owns it.
For iPhone, a better alternative is Apple Cash. Apple hasn’t been perfect on the censorship front. It’s banned apps in its app store, for instance. But it’s never threatened to snatch money from your account.
Another alternative is Block’s Cash App. It’s a leading PayPal competitor. It provides peer-to-peer money transfers. It also offers banking services through its partners.
Now onto those questions about chipmakers I mentioned up top…
Nomi’s subscribers at her daily e-letter, Inside Wall Street With Nomi Prins, have been peppering her with questions about a potential Chinese invasion of Taiwan.
Today, she addresses concerns about the impact it could have on chipmakers in general… and semiconductor giant Taiwan Semiconductor Manufacturing Company (TSMC) in particular.
It’s the world’s largest semiconductor foundry – meaning it makes the silicon wafers other companies’ chips are made from. And it’s based in Taiwan.
Reader question: If China takes Taiwan, it could easily forbid TSMC to sell chips to Nvidia the same way the Biden administration is forbidding Nvidia to sell its chips to China.
Do you know of other U.S. companies that have a major relationship with TSMC besides Nvidia and Apple? Thank you for sharing your knowledge.
– Paul B.
Reader comment: As I understand it, TSMC plans to shift much of its production to Japan as soon as possible.
It’s a mystery to me why the U.S. never brought TSMC here. The only thing I can think of is that the U.S. government has knowingly left TSMC alone, has strong treaties in place, and would help defend Taiwan.
– Jackson O.
Nomi’s response: Thank you both for writing in. You bring up some valid concerns.
I don’t believe China will attack Taiwan. It doesn’t want to deal with the kind of economic pain the West has inflicted on Russia for attacking Ukraine.
But if it does do something rash, China could indeed ban TSMC from selling chips to U.S companies. Washington told U.S. chipmaker Nvidia to stop selling chips to China and Russia. So it would be tit for tat.
This may not make economic sense. But it would be a blow to U.S. tech firms. And by extension to the stock market and the economy.
But China wouldn’t invade Taiwan just to trigger supply chain disruptions. Chinese mines provide a lot of the rare earth metals that go into chips. If it wanted to cause supply disruptions, it could just stop exporting these critical metals.
Regarding U.S. companies’ relationships with TSMC…
Intel and Micron Technology still make chips domestically. But Nvidia, Apple, Qualcomm, AMD, Amazon, and Google all rely on TSMC chips.
These U.S. companies count on Taiwanese manufacturers for about 90% of their chips. So it will be a challenging and long journey for them to diversify away from TSMC.
The best way I see to profit from what’s going on is through shares in a U.S. chipmaker such as Intel (INTC) that doesn’t rely on TSMC-made chips.
You can’t ramp up chip production overnight. So this would be a long-term investment.
You could also look into rare earth metals and other similar commodities, as I’ve suggested in the past.
As for why TSMC doesn’t move more of its production out of Taiwan… it started building a plant in Japan with Sony Group earlier this year.
And TSMC already operates a factory in Camas, Washington, as well as design centers in Austin, Texas, and San Jose, California.
The company even hosted a ceremony for its new fabrication plant in Phoenix, Arizona, earlier this year. That makes the Arizona facility TSMC’s second manufacturing site in the U.S.
So the company has been taking steps to expand its presence in the U.S. and other countries. But it’s a good bet TSMC wants to stay neutral as possible between the U.S. and China… and to sell its chips to all. This makes economic sense.
As much as the U.S. cajoles TSMC to set up more plants there for manufacturing high-end chips, I don’t see it moving much of its production shifting any time soon unless we see a major escalation in the China-Taiwan situation.
That’s all we have time for this week. If you have a question for Jeff, Nomi, or anyone else on the Legacy team, be sure to send it to feedback@legacyresearch.com.
I’ll do my best to get you an answer.
Have a great weekend.
Regards,
Chris Lowe
Editor, The Daily Cut