If you google the definition of insanity you should find our totally ridiculous approach to China, defense, supply chain disruptions, and port congestion, with a sprinkling of some meetings between tech chieftains and the White House. Worse, here is how the meeting will go: all will listen intently to each other and then Intel (INTC) CEO Pat Gelsinger will make grandiose statements for the industry because, after all, he's been CEO of the once all-powerful semiconductor since February 15th of this year.
Obviously I have grown tired of this nonsense because, while the big guns will be there, everyone from Ford (F) and GM (GM) to Samsung, Apple (AAPL) , Microsoft (MSFT) , Micron (MU) and Taiwan Semiconductor (TSM) , the president and these companies are approaching this all wrong.
Yes, they are trying to include $52 billion in the budget to get semiconductors built here, but it's been all talk for ages because the industry itself wants the U.S. government to pay for as much as possible instead of realizing how hopeless Washington is as a source of any sort of help in doing so. They can't even get a deal to fix bridges and tunnels, how in heck can they get one to help companies that make billions and give a lot of that money to rich shareholders in the form of buybacks and dividends. I bet Global Foundries soon comes public and Washington will decry how much money they make while they don't kick back to the U.S. like the do in China.
There are only two approaches that can work here. The first is for these companies to recognize that if 20% of all container ships are stuck waiting to unload in West Coast ports then the problem is endemic and they should stop thinking it will be cured. There's nothing that will be cured in time to help these industries within the next two years.
Second, they should just plan on their own, supplier to customer, greenfield semiconductor plants to end the madness. The chips they need are so low end versus the high performance chips where the margin is that they won't be built in this country unless there is cooperation between, say, a Ford and an Avnet (AVT) or a GM and a Global Foundries which makes older chips for the military in upstate New York. Ford, for the price of the $2 billion in lost sales, could build a low-end plant like the Intel factory in Israel that has almost no employees but plenty of wafers. If you know the shortage is not going to cure itself, you have to go do something about it.
So what about Washington? Someone in the room should say that this situation has gone from supply chain madness to defense desperation. Taiwan Semi makes most of the pedestrian but vital chips we need. The military will need these chips to combat the ever-growing presence of the Chinese defense build up.
Which begs the question: why is this a civilian issue? Why isn't it a defense issue? Why can't President Biden acknowledge that this $52 billion, bottled up in the House, can only get to where it's needed if the Defense Department speaks up and says that if the PRC decides to takeover or squeeze Taiwan than we might fall behind them in their expansion.
Again, the clock is ticking. The Chinese obviously have ambitions to take over Taiwan which has the big machines it needs to build up its own chip industry. They need the big ASML Holdings (ASML) machines that are instrumental in making critical chips and we are blocking the Dutch company from sending these $150 million machines, the size of buses, from having them. We are forcing China's hand here and I don't know how much longer they can afford to play a waiting game.
That's why the U.S. must commit to building these foundries and get construction started next year. The moral hazard might be chips that cure the current shortage, which, again, will be current for the next several years because there is so much demand.
Why doesn't this happen? Why didn't it happen under Trump? Because we are a democracy that's paralyzed while the Chinese are a totalitarian society that can easily afford to pass us unless we make this a defense issue.
Yet here is what will happen. The meeting will occur. There will be no change in what is happening. Most chips that are needed will continue to be made in Taiwan. The Chinese will move ever closer to Taiwan by taking over islands near the U.S. ally. It will destabilize the democracy and in two years we won't have a chip shortage, we just won't have any chips because they are too expensive to make here.
There you have it. You like it that way? Then you will love today's meeting. It really is the definition of insanity.
(Ford, Apple and Microsoft are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)
