Whatās Going On Here?The US, Japan, South Korea, and Taiwan are forming chip-making alliances in a bid to stay one step ahead of China. What Does This Mean?Chip shortages donāt refer to empty bags of Doritos ā theyāre what happens when clogged supply chains slow the distribution of oh-so-precious semiconductors or āchipsā. The resulting scarcity has been a headache for loads of industries that need chips for their products. On top of that, tensions with China have raised the stakes. See, Taiwan is home to TSMC, the world's largest and most advanced chipmaker, and the US and its allies are terrified that China could wrest control of the firm through an invasion. So itās no surprise that Chinaās rivals are discussing their options. On Thursday details emerged of a US-proposed alliance that would bring together four semiconductor powerhouse partners, strengthening the hand of Chinaās rivals (tweet this). Why Should I Care?Zooming out: Pockets of power.
The problem with the chip industry is that thereās too much power in too few hands. TSMC dominates the manufacturing market; Dutch firm ASML is the reigning champ in advanced machinery, and Cadence Design and Synopsis have carved up the market for chip-design software between them. Itās A-OK for a few big players to rule the supply chain when allās well in the world. But when geopolitical tensions start rumbling, semiconductor foundations start to look very shaky.
For you personally: Lessons for investors.
Every couple of years, a better chip hits the market ā and if it happens to be yours, youāre onto a winner. Your market-leading chips will sell like hotcakes, netting you a tidy profit that you can re-invest, ensuring that the next chipās even better. This patternās common in fast-moving industries, and explains the success of tech mega-corporations. But, although backing tech winners is usually a profitable strategy, canny investors know that innovative rivals and geopolitical upheavals are always lurking, ready to dethrone complacent reigning champs. | 
