There are many advantages to investing in mature companies and one of them is when there is a crisis, the company uses its competitive advantage to ensure its supply systems continue to run. For months we have been hearing when the pandemic started there was an increased demand for micro chips because of people staying at home. In the old days, they may have watched TV, and people did watch more TV but it was tied to their computer. Many companies bought laptops for people to work at home. and while at home, there was a healthy percentage who played games on their computer. All the above drove the demand for micro chips. If you bought a car in the last couple of years, you would notice more features are tied to micro chips, the average car has about 100 micro chips. In the pandemic world there became a shortage.
In an article by Neal E Boudette and Don Clark of the New York Times News Service, the head of Ford Motor Company Jim Farley must have making the rounds of the micro chips makers and after talking to Thomas Caulfield of GlobalFoundries a semi-conductor supplier decided to collaborate on developing chips for Ford vehicles and explore ways to build the chips in the US.
Most micro chips are build in China, South Korea and Taiwan – the chips maybe developed in the US but the actually manufacturing takes place in Asia.
GlobalFoundries was formed in part through acquisitions of plants owned by AMD and IBM and headquartered in Albany, NY.
Linking to dividend paying stocks, often times the consistently profitable companies tend to be mature companies who have long established supply chains to ensure their products can be sold to customers. One of the advantages of the companies is they have excess capital to help their suppliers and as long as the company is profitable and can pay their bills, the supplier companies benefit from the relationship. If the large company is the majority supplier, one can ask about diversification risks, but the relationship can last for decades. The mature companies work to ensure their supply chains are running smoothly and can take steps to ensure that happens. It was good business for Ford to reach out to GlobalFoundries and we see what happens.
There are more questions than answers, till the next time – to raising questions.