Several substantial barriers to entry protect semiconductor manufacturers, shielding their profit margins:
- Creating a new semiconductor takes huge financial investments, if only for lithography machines costing around USD 100 million.
- The thousands of highly-skilled, highly-paid engineers needed to research, design and make semiconductors cannot be recruited overnight.
- Large numbers of patents protect the intellectual property behind semiconductors.
Such ‘economic moats’ enshrine competitive advantages. That’s why semiconductor pioneers like Texas Instruments (invented the world’s first integrated circuit in 1958) and Intel (created the first commercial chip in 1971) are still leading players. This is an interesting factor to reflect upon when considering an investment in Semiconductor ETF.