The Business Times

Here is how the world's chip shortage is playing out for stocks

Amid warnings that shortage may last into H2, makers of cars and networking equipment are feeling the pinch

Published Mon, Mar 29, 2021 · 05:50 AM


A GLOBAL semiconductor shortage has upended the supply of everyday devices from smartphones to gaming consoles to tech-dependent cars. With companies warning the issue may last into the second half of the year, the fallout threatens to weigh on share prices for months to come.

Since news broke in November that Apple faced a shortage of chips for its latest iPhone, warnings about the impact have been coming thick and fast. Truckmaker Volvo and electric vehicle (EV) company Nio last week joined a long list of auto producers that have idled assembly lines.

The lack of chips has been caused by booming demand for tech gear, in large part because of the pandemic, and winter weather in Texas and a fire in Japan have added to the problem. It has been a boon for companies such as Applied Materials and Lam Research that produce the equipment semiconductor makers need to boost output.

Here is a look at the companies with the most at stake as the global chip shortage rages on, and how their stocks have been affected:

Auto stocks have come roaring back from their pandemic lows. Now both the chip shortage and concern over a resurgence of Covid-19 have pulled a Bloomberg index of global manufacturers down 14 per cent from its Jan 25 record high.


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Volvo Group slumped 7 per cent on Tuesday after saying it will have to suspend production due to the lack of semiconductors, while China's Nio slid 4.8 per cent on Friday when it said it will stop output at a factory in Anhui province.

A fire on March 19 at a Japanese factory operated by Renesas Electronics, one of the biggest makers of automotive chips, hit the industry hard. It triggered a 6.7 per cent drop in General Motors shares over three days last week. In Japan, shares of Toyota Motor, which touched a six-year high March 18, slumped 6.1 per cent in the subsequent four sessions.

"The automotive sector has arguably experienced the greatest level of disruption, with more and more original equipment manufacturers (OEMs) either slowing production or closing manufacturing plants on a temporary basis," said Thomas Fitzgerald, a fund manager at EdenTree Investment Management.

China's Geely Automobile Holdings slid 19 per cent over three days last week after reporting disappointing earnings. Daiwa Securities cited the chip shortage in downgrading the stock and cutting estimates for this year and next. China is dealing with unrelated chip-supply issues of its own.

Beyond the auto industry, it is harder to tease out the stock market impact on companies that depend on semiconductors. Shares of Apple, for example, did not react in November to the impact of the shortage, and climbed more than 5 per cent since then. Smartphone maker Xiaomi slumped 4.4 per cent on Thursday after warning that parts shortages could slow its growth for the next few quarters.

One positive aspect of the chip shortage: With demand for consumer electronics as strong as it is, it gives companies the power to raise prices and pass on higher costs, said Neil Campling, an analyst at Mirabaud Securities. "The share prices haven't reacted particularly negatively to the news, and I think that's because the important part is that you're seeing a snapback in demand for these goods," he said.

Lenovo Group said in August that its profit margins took a hit from the chip shortage, and in November it said it could not fill all customer orders due to the lack of components. Still, demand for the company's laptops is soaring because of purchases by people working at home, and the stock has doubled since August.

Sony said last month it might be unable to fully sate demand for its new gaming console in 2021 because of production bottlenecks. The stock touched a 21-year high in February, though it has dipped 8.2 per cent since then.

While Samsung Electronics' foundry business making chips for other companies benefits from the favourable supply-demand equation, the South Korean firm also has its own line of consumer products that are hurt. Samsung this month warned of problems, including the possible cancellation of the launch of its new Galaxy Note, one of its best-selling smartphone models.

Makers of networking equipment also have been feeling the pinch. Analysts at Oddo BHF flagged a DigiTimes report that the lead times for deliveries of networking chips are extending to as long as 50 weeks, suggesting that the chip shortage has also reached the networking segment and will likely last into early next year.

While automakers have struggled, the flip side of the semiconductor shortage is that the companies supplying those chips could see a boost to their business.

Most semiconductor companies should report strong results for the first quarter and give good guidance for the second, said Janardan Menon, an analyst at Liberum Capital. "This is all great news for the semiconductor vendor," he said. "This kind of tightness - of capacity utilisation, rising prices, very, very strong demand - invariably means that their results are very, very strong."

However, he cautioned that share prices may not follow, given current market worries that the peak of the semiconductor cycle is approaching.

European auto chip supplier Infineon Technologies AG is up 12 per cent for the year while STMicroelectronics NV has gained just 5.6 per cent. In the US, Texas Instruments is up 15 per cent, while NXP Semiconductors and ON Semiconductor have done better, up 25 per cent and 24 per cent respectively, versus the Philadelphia Semiconductor Index's 11 per cent rise.

There are also broader winners from the shortages in the semiconductor industry, with chip foundries such as leader Taiwan Semiconductor Manufacturing Co (TSMC) running at close to full capacity to try to keep up with the surge in demand. TSMC shares are down 12 per cent from their record set Jan 21 but are still up 11 per cent on the year.

The makers of equipment used to produce semiconductors are benefiting from the supply crunch as chipmakers rush to add capacity to their factories and governments concerned about national security risks are looking at measures to encourage local production. The combination has created a spending environment that some analysts say will benefit the industry for years.

Applied Materials, the biggest equipment maker, has seen its shares double in the past six months, while Lam Research has gained 77 per cent over the same period, nearly twice the return for the Philadelphia semiconductor index. ASML Holding is up 74 per cent. BLOOMBERG

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