Semiconductor Industry

[winston]

Semiconductors – Of inflation and geopolitics

In the face of the ongoing tensions between Russia and Ukraine, and looking at the state of affairs within the semiconductor sector, one cannot help but think of the universal Scouts motto: Be Prepared

Ukraine is a major supplier of inert gases like neon, which are key chemicals employed in a major step in the foundry process.

Separately, Russia is also a major producer of palladium, which is used mainly for the semiconductor deposition process.

The ongoing conflict in Ukraine has naturally led to concerns among investors about potential supply chain disruptions.

However, major chip companies generally believe that disruptions should be limited for now, given raw material stockpiling and diversified procurement.

Based on 3rd party channel checks, foundries in Asia have accumulated ~6 months of gases inventory prior to the crisis to buffer for any raw material shortages arising from the growth in foundry capacity expansion.

On palladium, we believe that there are alternative sources available (e.g. South Africa, North America), while 3rd party channel checks indicate sufficient channel inventories, which can cover 2-3 quarters.

In our view, the above can also be partly explained by the memories of the exponential increase in neon prices during the Crimea annexation back in 2014. Thus, we believe that the industry has been diversifying their suppliers of essential raw materials/gas since then.

Moving forward, we believe that recent events would prompt players across the semi supply chain to maintain a higher level of inventory for longer, especially with the supply chain uncertainties.

At the same time, we think that companies could also scrutinize their expansion into Eastern Europe or other European countries more closely.

While cost inflation arising from raw materials such as neon or palladium is possible, these are still but small components of the overall cost structure.

Nonetheless, investors should recognize that there is the risk of tensions becoming prolonged, which will invariably have a more pronounced impact as inventories get drawn down.

Apart from the cost pressures arising from the ongoing conflict, investors are also concerned about the impact of inflation (both in the supply chain and across the economy) on semis.

This is understandable: as we have highlighted in our previous report (Global Technology – Navigating through the storm), semis do historically underperform during inflationary periods.

Still, we note a number of encouraging observations. We believe that the semicap equipment names have mostly been able to pass on higher costs (while absorbing some), given the unique nature of the tools they sell (and lack of suitable alternatives other than a few other vendors).

In general, foundries have already raised prices significantly in 2022 (especially TSMC) so they have certainly benefitted in that regard. We should also highlight that broad-based semiconductor firms have been able to retain pricing power and pass higher foundry production costs along to their customers.

All considered, we make no change to our preference for TSMC and Skyworks Solutions within the space, and also add ASML to the list following the recent bout of market weakness.

Source: OCBC

[winston]

Global semicon sales rose 27% y-o-y in January to US$50.7 billion, says SIA

by Surin Murugiah

Source: theedgemarkets.com

https://www.theedgemarkets.com/article/ ... n-says-sia

[winston]

Global semiconductor equipment materials industry revenue to hit US$1.3tril by 2030, says SEMI

by Surin Murugiah

Projections pointing to the industry more than doubling revenue to approximately US$1.3 trillion (RM5.43 trillion) by 2030.

The recent helium shortage is due to a number of factors: declining production at the world’s largest helium source – the US government’s Bureau of Land Management facility in Amarillo, Texas, plus long outages at other helium facilities in the US and Algeria.

Helium is an important element in the processing of silicon into functioning chips done in a fabrication facilities (fabs).

“The SEMI World Fab Forecast database is tracking 86 fabs with major capacity coming online between 2020 and 2024.

Source: theedgemarkets.com

https://www.theedgemarkets.com/article/ ... -says-semi

[winston]

Ukraine neon shutdown worsens chips squeeze

Ukraine's two leading suppliers of neon, which produce about half the world's supply of the key ingredient for making chips, have halted their operations.

Some 45 percent to 54 percent of the world's semiconductor-grade neon, critical for the lasers used to make chips, comes from two Ukrainian companies, Ingas and Cryoin.

Lead times increased by three days to 26.2 weeks last month.

Source: AP

https://www.thestandard.com.hk/section- ... ps-squeeze

[winston]

Could This Be More Bad News for AMD and Other Semiconductor Companies?

By Jose Najarro

First, AMD and AAPL serve the consumer market, and second, both have analysts that believe there is an increased risk of consumer spending slowing down.

The semiconductor market tends to be cyclical and investors might be worried that the market has peaked for this cycle.

Unfortunately, this is very hard to determine due to the strong spending by enterprises and cloud providers.

So as one market peaks, the other market could just be getting started.

Source: The Motley Fool

https://www.fool.com/investing/2022/04/ ... yptr=yahoo

[winston]

Global semicon sales rose 32.4% y-o-y in February to US52.5 billion, says SIA

by Surin Murugiah

The figure was 3.4% more than the January 2022 total of US$50.7 billion.

Sales remained strong in February, increasing by more than 20% for the eleventh consecutive month on a y-o-y basis.

“Sales into the Americas continued to outpace other regional markets, increasing by 43.2% y-o-y in February”.

Source: theedgemarkets.com

https://www.theedgemarkets.com/article/ ... n-says-sia

[behappyalways]

Wait-Times For Semi Chips Rise As China Lockdowns Re-Ignite Supply Chain Congestion
https://www.zerohedge.com/markets/wait- ... -congested

[winston]

Global semiconductor equipment sales jumped 44% to record US$102.6b in 2021, says SEMI

by Surin Murugiah

Source: theedgemarkets.com

https://www.theedgemarkets.com/article/ ... -says-semi

[winston]

Inflows

Semiconductor ETFs saw roughly US$1.7bil (RM7.2bil) of inflows, according to data compiled by Bloomberg.

Since the beginning of the year, the funds have collected US$7.8bil (RM33.03bil), about as much as the past two years combined.

The influx of cash into semiconductors, a cyclical sector that typically does well when the economy is doing well, highlights the faith of investors that the industry will recover from the supply-chain turmoil exacerbated by the pandemic.

Source: Bloomberg

[winston]

Global semiconductor revenue grew 26% in 2021 to US$595b, says Gartner

by Surin Murugiah

It said the automotive market outperformed all other end markets, growing 34.9% in 2021.

Wireless communications, which is dominated by smartphones, saw a growth of 24.6%.

Source: theedgemarkets.com

https://www.theedgemarkets.com/article/ ... ys-gartner