By Kate Fox, Partner, Investment Manager in the Positive Change team at Baillie Gifford
What is no bigger than your fingernail, something you use multiple times a day but can’t see?
What are the most important technology companies you haven’t heard of?
TSMC and ASML.
To say semiconductors are essential to electronic devices is arguably inane; maybe to say they are essential to everyday life is fairer, and perhaps even closer to the truth is that they are responsible for powering phenomenal technological and societal advancement. TSMC is the world's largest semiconductor manufacturer and ASML is a leading semiconductor equipment manufacturer.
In his 2010 Ted Talk, the late and great Hans Rosling recounted the arrival of his family’s first washing machine and his mother saying, “Now Hans, we have loaded the laundry. The machine will make the work. And now we can go to the library,” and went on to energetically tell his audience “Because this is the magic: you load the laundry, and what do you get out of the machine? You get books out of the machines, children’s books. And mother got time to read for me… (and) she got books for herself.” He then went on to thank industrialisation, steel mills, power stations and the chemical processing industry, all of which contributed to making washing machines possible. Semiconductors also play their role in programming washes. Laundry is mundane, but the washing machine is miraculous in saving (predominantly) women the labour of finding, transporting and heating water before the labour of washing, and for freeing up their time to spend on something more enjoyable and productive.
ASML and TSMC have played a crucial, but seldom recognised or lauded, role in reaching the milestone of over half of the global population being connected to the internet. Semiconductors made by TSMC using ASML’s equipment have enabled the rollout of network infrastructure (2G, 3G, 4G and now 5G networks) across the globe and price deflation in mobile devices. Connectivity has many benefits.
Crucially, it enables greater access to information that can expand knowledge and aid decision making; it provides access to vital tools and services such as an ability to make safe payments and means of transferring money and it brings sellers and buyers together. Connectivity can enable inclusivity and productivity, making it an incredibly powerful tool in addressing poverty.
Of course, the impact of these companies is not always universally positive. For example, semiconductors are used to power military equipment; rapid innovation cycles create additional demand and consumption for electronic devices which has environmental consequences and not all information available is accurate or ‘good’. We are open to these potential negatives but, on balance, we believe technological advancement and inclusive economic growth are inherently positive in driving social progress.
Semiconductors are powering more than universal connectivity – they are enablers of the energy transition, electrification, and monumental change in the healthcare sector where genetics, data and machine learning are helping us understand biology and develop novel diagnostic tools and new paradigms of medicine. They are at the heart of technology; they are the building blocks of the innovation that powers societal progress.
Whilst not obvious contenders for a global impact strategy, the impact that some of the most influential companies have on daily lives can be hidden from view. That’s why the team behind the Baillie Gifford Positive Change fund believe this cluster of companies are important enablers of what Hans Rosling described as “the secret silent miracle of human progress.” To identify those companies powering positive change requires broad horizons - a willingness to look beyond the traditional sector classification, and an open and inclusive approach – an inquisitive attitude to the possibilities and controversies. It’s not easy, but then anything worthwhile is seldom easy.
Capital at risk.
Read the full Baillie Gifford article
1. Semiconductors are a series of electronic circuits printed onto a conducting material (usually silicon). They form the brains of devices, determining their capabilities and functionality.