Buffett TSMC's U-turn spotlights chips' siren call

HONG KONG, Feb 16 (Reuters Breakingviews) – A lot can change in three months, especially in the world of semiconductor investing. Warren Buffett’s Berkshire Hathaway (BRKa.N) inexplicably sold most of its $4.1 billion holding in Taiwan Semiconductor Manufacturing (2330.TW), a position only disclosed in November.

The sudden U-turn is uncharacteristic for the world’s most-watched investor, whose bets on companies like Chinese electric-car maker BYD (002594.SZ), have paid off handsomely after over a decade. For TSMC, Berkshire probably pocketed a 9% return, Reuters reported citing analyst estimates, having held the stake for roughly three months. Further perplexing investors, Buffett’s business partner Charlie Munger declared that TSMC was the “strongest company on earth” at a meeting on Wednesday.

He may be right about TSMC, which boasts a monopoly in advanced chipmaking and superior profitability – the “moats” Buffett prizes so highly. Yet the backdrop has darkened. In January, TSMC warned revenue will fall in the first quarter; peers including Micron Technology (MU.O) and Intel (INTC.O) have announced spending cuts and layoffs too.

Geopolitics have also dampened the sector’s appeal. Washington is enlisting allies to restrict chip exports to China. The shooting down of a suspected Chinese spy balloon in the United States this month has escalated tensions. Recent comments by American defense and intelligence officials warning that Beijing might invade Taiwan in the next few years don’t help either. Moat or no moat, the outlook for chips is getting dicey. (By Robyn Mak)

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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

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Editing by Pete Sweeney and Pranav Kiran

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