JPMorgan on Semiconductor Shortage and Outlook for 2022, 2023


SK Hynix’s DRAM memory chips are laid out for photography at the company’s headquarters in Seoul, South Korea, January 28, 2013.

Jean Chung | Bloomberg | Getty Images

The global chip shortage is expected to last until 2022 – but the situation could improve from mid-year as more supplies become available, a leading semiconductor analyst told CNBC. plan at JPMorgan.

The U.S. investment bank recommends that investors pursue long-term trends in the semiconductor space – in areas such as high-end computing globally as well as less advanced technologies in China.

A continuing shortage of chip supply has hampered production in a number of industries, from cars and consumer devices, to personal computers and smartphones.

Some analysts and investors expect the shortage to last until 2023, but JPMorgan is less bearish.

“We don’t expect a supply shortage in 2023 – so that’s probably the first thing we can say,” Gokul Hariharan, co-head of Asia-Pacific technology research, told CNBC. media and telecommunications at JPMorgan.

But 2022 “is a little trickier,” he said. Things could improve in the second half of the year with more supplies coming online, but the first six months could still see pockets of scarcity in the industry, Hariharan said.

“There is capacity online, not only foundry companies, but also [integrated device manufacturer] companies. All US and European IDMs are also expanding their capacity – much of it is expected to go live from the middle of next year, ”he added.

Foundries are companies hired by semiconductor companies to make chips. IDMs, on the other hand, are companies that design, manufacture and sell these chips.

Two light points

JPMorgan recommends that investors start looking for longer-term trends in the semiconductor space that are more structural than cyclical, Hariharan told CNBC.

Structural trends tend to be permanent, long-term changes in an industry, while cyclical trends are influenced by the business cycle and usually return to the original starting point after a few years.

There are two trends that investment banking is “really positive about over the next three to five years,” he said.

The first concerns very high-end computing segments, according to Hariharan. There is a continuing disruption of high-end IT globally, which was once very monolithic, but is now fragmented as more companies enter the space.

For example, tech giants like Apple, Amazon, Meta (formerly Facebook), Tesla, and Baidu are all avoiding established chipmakers and bringing some aspects of chip development in-house.

“There is a lot of fragmentation of this space – and it certainly leads to faster growth,” Hariharan said. “So it’s a space, I think, we expect it to grow to maybe double digits – 15% to 20% – over the next three to five years.”

The second trend that JPMorgan is positive about concerns Chinese semiconductor companies that focus on traditional long-tail technologies. These companies manufacture a variety of less advanced chips in areas such as power management, microcontrollers, sensors, and other consumer-related segments.

“We are seeing that more and more companies are springing up in China with the aim of targeting some of these long-tail technologies,” Hariharan said.

“The local demand is clearly there. Most of these companies may only have 5-10% of the local demand served at this point. So the potential market is maybe 5-10. [times] of what they currently serve, “he added.

How are Asian semiconductors doing

Top Asian Semiconductor Companies by Revenue have posted double-digit annual profit growth in recent quarters, according to financial data provider Refinitiv Eikon.

Manufacturing chips in the midst of a global supply shortage is an attractive proposition for businesses.

For example, the Taiwan Semiconductor Manufacturing Company is would increase prices 10% for advanced chips, while less advanced chips – commonly used by automakers – would cost 20% more. TSMC is the world’s largest semiconductor chip supplier.

But their fortunes on the stock market have been mixed.

While TSMC, MediaTek, UMC and Renesas Electronics are up 16% to 45% so far this year, shares of Samsung Electronics – the world’s largest chipmaker by revenue – and SK Hynix are down 13% and 6%, respectively, in the same period.

Hariharan explained that memory chips are an important component of the Asian semiconductor industry and that memory prices have been falling since early October.

“The market was expecting a slight slowdown in this space, so it’s kind of a down cycle,” he said. “The other part, I would say, is that the market has also been a little worried about when the cycle is going to peak.”

Samsung and SK Hynix are both manufacturers of memory chips.

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Investors are generally unwilling to pay if they are worried about whether a company can exceed its earnings expectations in the coming quarters, Hariharan explained.

He said JPMorgan expects a relatively short slowdown in the memory cycle, as industry dynamics have improved from previous slowdown cycles which have lasted longer.

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