Warren Buffett sold all TSMC shares over concerns about Taiwan’s stability

Warren Buffett’s conglomerate Berkshire Hathaway has now sold all its TSMC shares in what has been described as an “abrupt” move.

Buffett said that while he remained a great admirer of the company, tensions between China and Taiwan were too great to make it a safe investment – highlighting concerns about Apple’s total dependence on the Taiwan Semiconductor Manufacturing Company for all of its processors …

Apple is completely dependent on TSMC

Apple likes to have more than one supplier for all key components, to provide both resilience and better negotiating power. That used to include A-series chip production, which was split between Samsung and TSMC.

That changed with the launch of the iPhone 7 way back in 2016. TSMC pulled ahead of Samsung in the fabrication of small-process chips, and has retained its technical lead to this day. From the iPhone 7 on, all iPhone processors have been made exclusively by TSMC.

The Mac’s switch from Intel to Apple Silicon saw TSMC win all Apple’s M-series business too. That leaves the Cupertino company in the nerve-wracking position of its entire product lineup – from Apple Watch to MacBook Pro – being totally dependent on a single supplier.

Taiwan’s uncertain future

Taiwan considers itself an independent nation, with its own constitution, elections, passport, currency, and armed forces.

The Chinese government, however, views the island as a territory of its own country. Since China refuses diplomatic relations with any country recognizing Taiwan’s independence, most Western countries play an uneasy game of pretending not to, by having “representative offices” on the island – which are embassies in all but name.

The possibility of China invading Taiwan has been ever-present, but until recently was not considered likely.

That risk has never been greater than today

One of the main deterrents against invasion has been America’s Taiwan Relations Act. This creates a legal obligation on the US to help Taiwan defend itself against a Chinese invasion.

However, the global response to Russia’s invasion of Ukraine demonstrated to China that while it might face economic risks by invading Taiwan, it was unlikely to face military ones, for fear that it might ignite nuclear war.

Increasing political and economic tensions between China and the US have increased the risks. Some think China may choose to use military ships and aircraft to blockade the island, cutting off exports. This would be an effective way to do a significant amount of economic damage to American companies even without a full-scale invasion.

China even rehearsed a blockade in August of last year. US military advisors said at the time that the short-term risk was low, but the medium- to long-term outlook for Taiwan was not good.

Buffett ‘re-evaluated’ risk to Taiwan

Bloomberg reports that Buffett decided to sell all its TSMC shares after reassessing the risks involved in Taiwanese production. While TSMC does make some chips in other countries, all its cutting-edge production is on the island.

Buffett’s Berkshire Hathaway Inc exited the stock in the first quarter, according to a filing, after the firm slashed its holding by 86% late last year. That move — which sent TSMC shares tumbling and investors spiraling — was motivated by concerns over geopolitical tensions between China and Taiwan, Buffett told investors at its annual meeting […]

“I feel better about the capital that we’ve got deployed in Japan than in Taiwan,” Buffett said earlier this month. “I wish it weren’t so, but I think that’s the reality, and I re-evaluated that in the light of certain things that were going on.”

So far, AAPL investors seem unconcerned, and it’s interesting that Buffett fears for the future of TSMC but remains a massive investor in Apple, despite its total dependence on the chipmaker.

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