The Global Chip Shortage

Mark

"The global computer chip shortage could have larger ramifications than making it harder to buy the latest video game console or more expensive to buy a car. According to a new Goldman Sachs (GS) note, the slowdown in chip availability could in theory smack U.S. GDP by as much as 1% in 2021.

In a research note led by Goldman’s Spencer Hill, an analysis looked at the economy-wide effects of the shortage by assuming a 20% chip shortfall that lasts three quarters and affects the 169 U.S. industries that use semiconductors in their products."

What the chip shortage means for the US economy

Sven

How did the world supply chain got caught behind? Also they would have a year worth supply with several alternate suppliers.

kings53man

China is prevented from making semiconductor chips using American technology - may be this is the reason (a major supplier taken out), don't know for sure? Or may be Just-in-time manufacturing is to be blamed - supply chain interwind so no stocking chips unless necessary - Supply Chain Disruption - chain broken somewhere?

Sven

All are good points. The trade war with China complicated the supply chain sourcing. Semiconductor manufacturing often involves multiple countries and certainly the pandemic is impacting the entire chain more than we know. Time-to-market or lean manufacturing process suppose to save money to have as little inventory as possible. Now there is two year backlog of shortage.

AndyJ

Taiwan is still in the business, and that may be at least part of the reason the Taiwan equity etf, EWT, is shooting out the lights while broader Asia funds aren't.

Sven

Taiwan semiconductor manufacturing company, TMC leads the world in contract manufacturing for these chipsets. And there are several more including one Chinese one (5th ?). Lot to catch up as the capacity has max out. TMC is building a plant in US but this will not solve the immediate shortage.

As investors it is important to check the top 10 holdings in your international funds or ETFs. TMC is held in many funds.

catch22

@Sven et al
The initial reports began about one month ago, but this BBC story is a recent update.
Having lived in Taiwan (Taipei area) for 2 years, I continue to follow a variety of news about the country, over the years.
ADD: Phoenix plant Taiwan Semi
Not a fix for the current circumstance, but........

Old_Joe

Don't forget that there was a very destructive fire a couple of months ago at a large Japanese chip manufacturing facility. As I recall. that particular facility made a significant number of the chips used in automotive manufactures.

From the pictures I saw the damage was extensive, and it's going to be quite a while before that facility is brought back on line. The equipment which was destroyed is very specialized, very expensive, and also possibly in short supply. With the current just-in-time mindset no company is going to invest in complex and expensive equipment just to sit around in case there's a sudden unexpected need for the products- manufacturing capacity like that is only built if it is needed in the existing markets.

If anything upsets the delicate demand/supply marketplace there is no reserve capacity.

Sven

You are correct. That was Renesas in Naka, Japan. Fire started in a plating process tank that virtually destroyed the entire facility. Renesas supplies Toyota, Honda, and several Janpanese car manufacturers.

In the meantime, the trade war affected SMIC, a large Chinese chip manufacturer. Chip production is complicated that involves multiple steps and process taken place in several countries where they who own their proprietary processes. For example, US is not allowing its processes (very fine scale photolithography) to SMIC as part of the trade war.

BenWP

@AndyJ is right about EWT. Not surprisingly, TMC makes up 19%+ of AUM. @Sven is also correct; TMC can be found in just about every diversified EM fund and in many international funds.

Mark

Who/What is TMC? TSM = Taiwan Semiconductor Mfg.

Sven

@Mark, I stand corrected with my typo. TSM is Taiwan Semiconductor Manufacturering Company.

Mark

For those who might be interested ADRE (Invesco BLDRS Emerging Markets 50 ADR) holds a 20.9% position in TSM.

Baseball_Fan

Just moved into a new home over the past month...when going thru my "stuff", I found notebooks and literature from seminars, presentations from industry conferences from the mid-90's. I worked leading an OEM sales team selling to the Semicon "tool" mfg's (a tool might be a 200 or 300mm CMP machine) such as Applied Materials etc. I distinctly remember in the late 90's parking 3 blocks down a side street when visiting AMATs corp site in Sunnyvale as there was no parking in their lots, too full, too busy. Tons of highly paid, talented associates working there.

Absolutely amazing to me when I looked where the tools were being sold and where the market share was then compared to now. Crazy how much semi business has been sent overseas in the last 20-25 years. Absolutely crazy. No really. It is insane!

And now we sell weed, raise taxes, build casinos, hand out fee monies because all the good jobs were exported. Dang!

Baseball Fan

Old_Joe

... and pay CEOs outrageous salaries and extras for accomplishing all of that. Go Capitalism! Yay!!!

Sven

Perhaps a pure play on semiconductors is VanEck Vectors semiconductors ETF, SMH. It invested in the major semi foundry, process equipment manufacturers, and many more.

Mark

Or SOXX