Chip shortages have hit tech makers around the world – while automaker stocks have declined due to forced plant shutdowns, semiconductor and semiconductor equipment makers are on the rise.
The problem of semiconductor shortages was brewing as early as November 2020, as the demand for computers, tablets, smartphones, game consoles and other electronics rose sharply amid the pandemic.
The situation was worsened by outbreaks of COVID-19 in chip factories, a fire at a Japanese chip factory and a slowdown in production due to the winter weather in Texas. Given the global nature of the problem, this affected the shares of various global companies.
Car manufacturer shares
Electric vehicle company Nio (NIO) and one of the world’s leading truck makers Volvo Group joined a long list of automakers last week to report temporary plant shutdowns due to semiconductor shortages.
Nio shares have dropped nearly 23% in the past month. Read more in Marketinfo.pro article “Nio Suspends Its Factory For Five Days Due To Semiconductor Shortages.”
General Motors (GM) shares lost 6.7% in three days last week amid news of a March 19 fire at a Japanese plant at Renesas Electronics, the world’s largest supplier of automotive chip makers. Although before that, GM shares have been rising since the beginning of March, despite the company’s announcement of production cuts at four plants in North America. GM shares are up 35.7% since early 2021.
Shares in Japan’s Toyota Motor, which hit a six-year high on March 18, fell 6.1% in the next four trading sessions.
Shares in China’s Geely Automobile Holdings fell as much as 19% in three days last week after a disappointing earnings report.
With the chip shortage likely to continue into the second quarter, analysts have downgraded their ratings and target prices for some automakers.
Thomas Fitzgerald, fund manager at EdenTree Investment Management, noted that the automotive sector is likely to be the hardest hit by the semiconductor shortage.
Shares of manufacturers of portable and consumer electronics
As for the impact of the problem on the stocks of manufacturers of smartphones, computers and consumer electronics, analysts note that the initial decline may be replaced by growth.
A more limited supply of goods “with this high demand gives companies the opportunity to raise prices and cover higher costs,” said Neil Campling, an analyst at Mirabaud Securities.
Shares of Apple (AAPL) rallied from November to February, and although the iPhone maker released a strong quarterly report at the end of January, the company did not give investors any guidance and the stock has fallen 16.4% in the past two months.
Shares in Chinese rival Apple, Xiaomi, tumbled 4.4% on Thursday after company executives warned that parts shortages could slow production over the next few quarters.
Lenovo Group said in November that it was unable to fulfill all customer orders due to a lack of components.
In turn, Sony Corp. said last month that it may not be able to fully meet the demand for its new game console in 2021 due to production delays. Sony shares hit a 21-year high in February, but they have dropped 8.2% since then.
Earlier in March, Samsung Electronics warned of similar concerns, including the possible cancellation of the launch of the new Galaxy Note, one of its top-selling smartphone models. At the same time, Samsung’s business of making chips for other companies is winning.
Demand creates supply, and semiconductor manufacturers benefit from the global shortage of microcircuits, the demand for their products is extremely high. Equipment manufacturers will buy their products even at a higher price – just to meet the high demand, while they will make stocks in order to provide themselves for some time in the future.
Liberum Capital analyst Janardan Menon predicts that semiconductor makers should report strong revenue and profit growth in the first quarter and good forecasts for the second.
The Philadelphia Semiconductor Index is up more than 11% YTD and 4.95% on Friday, while:
Shares of European chip suppliers Infineon Technologies AG and STMicroelectronics NV are also up 12% and 5.6% since early 2021.
Shares in the world’s largest chip supplier Taiwan Semiconductor Manufacturing (TSM) fell 18% from a record high on Jan.16, but still 7% higher than at the start of the year.
Semiconductor equipment manufacturers
The biggest winners of the current crisis are semiconductor manufacturers’ suppliers. As the latter seek to ramp up production in their factories amid high demand and low supply, they purchase equipment to expand production and supply large quantities to their customers.
In addition, governments, especially the United States and China, are seeking to stimulate domestic production given the importance of the semiconductor industry and national security risks. According to analysts, this creates a macro environment that will benefit the industry for years to come.
The growth charts for these three major vendors have shown a consistent strong growth trend since November:
Applied Materials (AMAT), the world’s largest equipment maker, rose 7.45% on Friday and 113.5% from November.
Lam Research (LRCX) shares are up 6.6% on Friday and 66% since early November (red line in chart below).
ASML Holding NV (ASML) shares were up 7% and 71%, respectively, over the same periods (blue line in the chart below).
Taiwan-based TSMC has pledged to invest up to $ 28 billion in capital expenditures in 2021, up from $ 17 billion a year earlier.
At the time, US giant Intel (INTC) announced about $ 20 billion in new factories that would supply chips to companies around the world.