NEW YORK, April 6 (Reuters Breakingviews) - The spice must flow. So goes the dictum of science-fiction universe Dune, dependent on a mysterious substance for space travel. In ​the real world, Taiwan’s semiconductor factories are of similarly existential importance. Shortages of both liquefied natural gas ‌and helium threaten production. If they need reassurance, chipmakers can look to a very literal case of keeping the spice flowing from the recent past.

In 2005, a nasty avian influenza strain threatened the world. Drugmaker Roche’s (ROPC.S), opens new tab Tamiflu was the best choice for fighting symptoms. The problem was, the ​United States had stockpiled millions of doses. To fill other nations’ orders, then-Roche boss Franz Humer needed to ​secure a compound found in an Asian pantry staple: star anise. The spice was the primary ⁠source of shikimic acid, a chemical necessary for manufacturing Tamiflu.

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There was no burst of supply that could sate this new ​demand. Demand for the spice rocketed, and the price of shikimic acid rose ten-fold in a month, opens new tab. Yusuf Hamied, chairman of ​Indian drugmaker Cipla (CIPL.NS), opens new tab, complained that his rival had cornered the market, opens new tab. Grumbling cooks, too, were largely priced out. But Roche produced its treatment.

Now consider cutting-edge chips. Taiwan Semiconductor Manufacturing (2330.TW), opens new tab is the essential silicon manufacturer for Nvidia (NVDA.O), opens new tab and its peers. To keep factories humming, the company needs power and raw ​materials. Conflict in the Gulf threatens both.

LNG accounted for nearly half of Taiwan’s electricity generation last year. One-third of the ​island’s supply came from Qatar, which is now largely shut down. But ships from elsewhere are still sailing, and can be rerouted if ‌a ⁠higher bidder jumps in. Taiwan can afford to do so, and supplies are sufficient: Asian prices are still well below 2022’s heights. Furthermore, the nation’s total imports last year equate to about two months’ worth of U.S. exports, and Washington would surely react if chip supplies were really threatened.

Then there are raw materials, particularly helium. Semiconductor makers account for 23% of global demand, according ​to Bank of America, while ​around 27% of supply ⁠has been taken offline amid the fighting. Like the chefs outbid by Roche, good luck to welders or balloon-pumping party planners in competing with $1.8 trillion titan TSMC for what’s left.

Star anise ​also shows that markets eventually find more elegant solutions. Roche now produces star anise’s active ​ingredient via cheap, ⁠plentiful bacterial fermentation. Taiwan will undoubtedly source different forms of power, while surprising new sources of helium will probably emerge. Odds are, silicon will continue to flow.

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Context News

• U.S. and Israeli attacks on Iran that started on February 28 have led to ⁠the effective ​closure of the Strait of Hormuz, which normally carries about 20% of ​the world’s oil and refined products.
• The Strait also carries large amounts of helium, necessary for semiconductor manufacturing. Qatar produces nearly a third of the world’s supply, ​according to Bank of America analysts.

For more insights like these, click here, opens new tab to try Breakingviews for free.

Editing by Jonathan Guilford; Production by Pranav Kiran

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Robert Cyran

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Robert Cyran, U.S. tech columnist, joined Breakingviews in London in 2003 and moved four years later to New York, where he continues to cover global technology, pharmaceuticals and special situations. Robert began his career at Forbes magazine, where he assisted in the startup of the international version of the magazine. Before working at Breakingviews he worked as a market researcher and reporter covering the pharmaceutical industry. Robert has a Masters degree in economics from Birmingham University and an undergraduate degree from George Washington University.

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