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Given this extremely optimistic outlook, investing in semiconductor stocks seems to be a no-brainer. Or the cycle could stretch out because of new developments in the digitization of the world. All the capacity that’s being built up today could ultimately lead to overcapacity in 2023 or 2024.īut that’s a typical situation for the semiconductor industry that goes through these cycles of tight supplies and strong pricing followed by capacity builds that again lead to extra capacity and stabilizing prices, and then a repetition of these things.
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While the tightness in auto chip supply has eased somewhat, it's very likely that things won’t normalize until the end of 2022, or even in 2023.Īs far as overall chip demand is concerned, a slowdown is not expected for a couple more years at least because of the increasingly connected world we live in today that includes more cloud usage, 5G, more IoT, more EVs, more digital entertainment, you name it. In the meantime, Biden has licensed American suppliers to sell equipment to Huawei, Semiconductor Manufacturing and other Chinese companies that remain blacklisted, so more capacity becomes available.
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But some time next year, we could have a situation where there is excess inventory of some components, which will free up capacity for others. It’s hard to tell exactly what is going on. Because production may have to be stalled on something like a washing machine if there is supply of sensors but not of microcontrollers (for example) since the washing machine uses both components. But when we have some companies stockpiling some components, others grabbing what they can get and every producer using semiconductors asking for more, there's likely some inventory imbalance building up.Īnd this could be terrible for the semiconductor supply chain. When demand follows some logical pattern, chipmakers are able to make adjustments between components to meet it. But that’s easier said than done because the production lines are shared with less sexy but equally important components like analog and power management chips, display drivers, microcontrollers, sensors and so on, that go into a multitude of things. This would seem to indicate that freeing up older capacity would be the solution to all these problems. So, chipmakers aren’t exactly racing to build these things.
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Chip production technology has gone ahead however and today, this kind of production line doesn’t yield a good return on investment. As we all know, that didn’t play out according to expectations, with demand picking up strongly by the end of the year and continuing thereafter.Īnd for the most part, this capacity is typically in older fabs using older 40nm processes and smaller 200mm wafer sizes. Stockpiling really makes a bad situation worse because capacity earmarked for auto was already retooled and repurposed for consumer/computing when automakers cancelled orders back in 2020 in anticipation of protracted weakness in demand. The capacity crunch is most pronounced in the auto market. In fact, they have been ordering above consumption for some time now so they don’t miss a design cycle and production schedules aren’t disturbed. Based on what we are hearing from market watchers, analysts and company management, the consumer/computing side is likely to come out of this sooner than the rest, especially the highly competitive, larger players like Apple and Samsung. That’s because semiconductor fabrication plants (fabs) take 2-3 years to build, and then they have to be qualified and equipped before mass production can begin. The semiconductor shortage seems to be dragging on forever, and if we listen to experts, it’s going to continue for a while. Here are highlights from Wednesday’s Analyst Blog: Playing the Semiconductor Shortage with 5 Buy-Ranked Stocks SGH, United Microelectronics Corporation UMC, Silicon Motion Technology Corporation SIMO and Alpha and Omega Semiconductor Limited AOSL. Stocks recently featured in the blog include: Nova Ltd. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Institutional Distribution IntelligenceĬhicago, IL – Decem– announces the list of stocks featured in the Analyst Blog.Non-Traditional Exchanges & New Markets.Directors’ and Officers’ Questionnaires.