SEC and TSMC are clearly two of the most successful companies in the
semiconductor industry. In terms of profitability, market share, innovation, and longevity, they far exceed their competitors in a rapidly changing environment. By looking at how the two companies were able to systematically solve problems through their propensities to sense opportunities and threats, then make timely and market-oriented decisions to address those threats, and finally to support those decisions by changing their resource bases, it has been demonstrated that they both possess dynamic capabilities that have not only allowed them to survive, but to thrive in a highly competitive environment. This conclusion has been
reinforced by the examination of their financial histories, which reveal that their dynamic capabilities have translated into financial performance to provide value to their shareholders.
That being said, it is of interest to note the slight tapering off of their financial
performance in the most recent period studied (2006-2009). One explanation for this is that it is simply the result of the global economic recession that occurred over the last few years.
This is hard to say, as the economic recovery is still in its initial stages, and though both companies express optimism about the future, it will likely take another year or more to truly see how much they recover, as well as how quickly. Indeed, when looking at SEC and TSMC’s financial performance relative to the industry average, they do not show signs of
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imminent trouble. However, when compared to their financial performance in the two earlier periods studied, the outlook is not as clear.
The fact that both SEC and TSMC have shown themselves to have exemplary records in using dynamic capabilities to turn resources into financial performance in the past gives reason to believe that they will continue to do so in the future. The question remains, however, as to how those dynamic capabilities will manifest themselves. For SEC the question is
whether their profits will continue to climb as they did from 2008 to 2009, or whether they will again drop as they did from 2004 to 2008. As profitability is one of the most significant indicators of a firm’s success, this is an important question. The problem that SEC must address is how to maintain competitiveness in an industry with an ever-increasing number of competitors while still maintaining a bottom line that satisfies shareholders. While once a follower, SEC is now a leader in its industry and as such it must use its dynamic capabilities to create a new path in an uncertain environment.
TSMC has also showed steadily declining profits since 2006, and its sales growth rate has generally been declining since 2004, as demonstrated by its ROA and ROE. Some of its asset management measures, specifically the current ratio and the inventory turnover ratio, also have shown a downward trend. All of these should be of concern to TSMC’s
management. Although they are not in serious trouble at the moment, these measures should be causing them to sense a threat.
As a pioneer in the pure-play foundry business, TSMC was once essentially the only game in town. Now, however, there are many firms competing for market share in the industry, and TSMC may have to adapt its strategy to maintain its status. The evidence indicates that its business model, essentially based on OEM, may be reaching its limits.
Although it is against its charter to produce or sell branded products, TSMC may have to re-think this position, or broaden its joint ventures and partnerships in order to reach new market
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segments. One possible decision TSMC’s management might make in response to the threat of declining market share, profits, and sales would be to reconfigure their resources to create a company outside of their charter which would allow them to begin to produce and sell branded goods or services. Whatever solution they arrive at, their dynamic capabilities will play an essential role in ensuring their future success. As they have demonstrated a high level of potential for solving problems (formed by their propensities to sense opportunities and threats, make timely and market-oriented decisions, and change their resource base) in the past, it is tempting to assume that they will continue to do so in the future. Only time will tell.
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