Welcome to Soundbites – weekly insights on market trends, and investment strategies, brought to you by Investment Executive, and powered by Canada Life.

In this, the second of our two-part series on major global investment trends, we wrap up our conversation with Morten Springborg, global thematic specialist at C WorldWide Asset Management in Copenhagen. Last week, he offered his views on tomorrow’s health care and the energy grid. Today we discuss the companies that are building our digital future. And we started by asking why he’s looking particularly at the production of semiconductors.

Morten Springborg (MS): The whole superconductor value chain is hugely important. They are basically the drivers of this deeper and deeper digitization of our societies because they’re providing the picks and shovels for digitization. You have some companies designing and selling semiconductors, which could be companies like Apple or NVIDIA [based in Santa Clara, Calif.]. But increasingly if you go further down to the so-called foundries where semiconductors are manufactured, we basically only have two or three companies today globally that are capable of manufacturing leading-edge semiconductors. And these very, very few foundries are acquiring machines only produced by one company in the world, namely a Dutch company called ASML [based in Eindhoven, Netherlands]. It’s a machine that can print on silicon wafers from previously seven and 10 nanometers to currently five nanometers but we actually, next year, are going to see three nanometers, and there is a roadmap down to two. So ASML, in my book, is probably the most important company in the world.

Now, a “mask blank” is a piece of glass you put into the machine that ASML produces. And Hoya [Corporation, based in Tokyo] is a Japanese company that is the only company in the world that has the capability of delivering mask blanks. So that means that today you have a monopoly supplier of the machine, ASML, and you also have a monopoly supplier of one of the most critical components going into that machine, namely the mask blank, and that is Hoya.

Now when you are producing semiconductors, cleanness of production sites is of utmost importance. And this is where Atlas Copco [based in Nacka Municipality, Sweden] comes in because they basically have the vacuum technology that can make these clean rooms extremely clean. They are a supplier to ASML and they’re a supplier also to semiconductor production companies Samsung and TSMC [based in Hsinchu, Taiwan], the world’s leading producers of semiconductors.

How TSMC ran away with the semiconductor business.

TSMC is a company that over the last 15 years have extended their leadership in the manufacturing of semiconductors. It used to be that it was way behind Intel [based in Santa Clara, Calif.]. But back in 2006, Intel made a very, very big mistake and that was to say no to Apple and the production of Apple’s chips for the iPhone. And, instead, Apple went to TSMC. And that has put TSMC in the position that they have today. Over the last 10 years, TSMC has produced three times more semiconductor chips than Intel. And scale matters in this business. We don’t think Intel will be able to get back in and become a credible challenger to TSMC.

How global politics could come into play here.

TSMC is a Taiwanese company, and it is situated around 100, 150 miles away from mainland China. The U.S. has basically put a ban on China’s ability to acquire leading semiconductor technology. And the Chinese feel it quite provocative that just across the strait, they have the world’s most advanced manufacturers of semiconductors that they cannot get their hands on. We have seen increased military activity from the Chinese, and they have violated the integrity of the Taiwanese borders multiple times recently. We think that sense will prevail but, on the other side, I have difficulty seeing what the Chinese can do about this. Because, fundamentally, the ban that the U.S. has put on sales of advanced semiconductors technology to China is a threat long-term to the continued economic evolution of the Chinese economy.

And finally, what’s the takeaway?

Just that everything goes from being analog to suddenly become digitized in a very, very short time span, and that completely changes everything. And we cannot overestimate the tremendous impact that the digitized world is going to have on our societies.

Well, those are today’s Soundbites, brought to you by Investment Executive, and powered by Canada Life. Our thanks again to Morten Springborg, global thematic specialist at C WorldWide Asset Management.

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