Here’s how the global chip shortage is hurting stocks

(Bloomberg) – A global semiconductor shortage has reversed the supply of everyday devices, from smartphones to game consoles to technology-dependent cars. With companies warning that the problem may last into the second half, the fallout threatens to affect stock prices for months to come.

Since news broke in November that Apple Inc. faced a shortage of chips for its latest iPhone, warnings about the impact have been strong and swift. Truck maker Volvo Group and electric vehicle company Nio Inc. last week joined a long list of automakers who have shut down assembly lines.

The chip shortage has been caused by growing demand for tech gear, largely due to the pandemic, and winter weather in Texas and a fire in Japan have added to the problem. It has been a boon for companies like Applied Materials Inc. and Lam Research Corp. that produce the equipment semiconductor manufacturers need to drive production.

Here’s a look at the companies with the most at stake as the global chip shortage increases and how their shares have been affected:

Car manufacturers

Auto stocks have roared back from their pandemic lows. Now, both a shortage of chips and concerns about the resurgence of the coronavirus pandemic have sent the Bloomberg index of global manufacturers down 14% from its all-time high on January 25.

The Volvo Group fell 7% on Tuesday after saying it will have to suspend production due to a lack of semiconductors, while China’s Nio fell 4.8% on Friday when it said it will halt production at a factory in the province of Anhui.

A fire on March 19 at a Japanese factory operated by Renesas Electronics Corp., one of the largest automotive chipmakers, hit the industry hard. It triggered a 6.7% drop in General Motors Corp. shares over three days last week. In Japan, shares of Toyota Motor Corp., which hit a six-year high on March 18, fell 6.1% in the next four sessions.

“The automotive sector has arguably experienced the highest level of disruption, with more and more OEMs slowing production or temporarily closing manufacturing plants,” said Thomas Fitzgerald, fund manager at EdenTree Investment Management Ltd., referring to original equipment manufacturers. .

China’s Geely Automobile Holdings Ltd. fell 19% for three days last week after reporting disappointing earnings. Daiwa Securities cited the chip shortage by lowering the stock’s rating and cutting estimates for this year and next. China is grappling with problems of its own unrelated to chip supply.

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Smartphones, Consumer Electronics

Beyond the auto industry, it is more difficult to determine the impact of the stock market on companies that depend on semiconductors. Shares of Apple, for example, did not react in November to the impact of the shortage and have risen more than 5% since then. Smartphone maker Xiaomi Corp. fell 4.4% on Thursday after warning that a shortage of spare parts could slow its growth over the next few quarters.

One upside to 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. “Share prices haven’t reacted particularly negatively to the news, and I think that’s because what’s important is that you are seeing a decline in demand for these products,” he said.

Lenovo Group Ltd. said in August that its profit margins were affected by chip shortages, and in November it said it could not fulfill all customer orders due to a lack of components. Still, demand for the company’s laptops is skyrocketing due to purchases by homeworkers, and the stock has doubled since August.

Sony Corp. said last month that it may not be able to fully meet demand for its new game console in 2021 due to production bottlenecks. The stock hit a 21-year high in February, though it has fallen 8.2% since then.

While Samsung Electronics Co.’s foundry business, which makes chips for other companies, benefits from the favorable supply-demand equation, the South Korean company also has its own line of consumer products that suffer. Samsung warned this month of problems, including the possible cancellation of the launch of its new Galaxy Note, one of its best-selling smartphone models.

Network equipment manufacturers have also been feeling the rush. Oddo BHF analysts pointed to a DigiTimes report that network chip lead times are extended up to 50 weeks, suggesting that the chip shortage has also reached the networking segment and will likely last until early next year. .

Chip makers

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

“This is all good news for the semiconductor supplier,” Liberum’s Menon said by phone. “This kind of rigidity, capacity utilization, price increases, very, very strong demand, invariably means that their results are very, very strong.”

However, Menon cautioned that stock prices may not follow, as the market is now concerned the peak of the semiconductor cycle is approaching.

European auto chip supplier Infineon Technologies AG is up 12% for the year, while STMicroelectronics NV has only gained 5.6%. In the US, Texas Instruments Inc. has risen 15%, while NXP Semiconductors NV and ON Semiconductor Corp. have done better, 25% and 24% respectively, compared to an 11% increase in the index of Philadelphia semiconductors.

There are also broader shortage winners in the semiconductor industry, with chip foundries like leading Taiwan Semiconductor Manufacturing Co. operating near full capacity to try to keep up with rising demand. TSMC shares are down 12% from their record set on January 21, but are still up 11% for the year.

Semiconductor equipment manufacturers

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

Applied Materials, the largest equipment maker, has seen its shares double in the past six months, while Lam Research has gained 77% over the same period, nearly double the performance of the Philadelphia Semiconductor Index. ASML Holding NV is up 74%.

TSMC pledged to spend up to $ 28 billion in capital expenditures in 2021, up from $ 17 billion the previous year, while Intel Corp. presented a plan on March 23 to invest billions of dollars in installations of production.

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