Lack of Chips: Asia “Moving” the Global Economy

The global shortage of semiconductor chips has hugely impacted the world’s economy and there are raising concerns that the crisis will not have been ending up in 2022, Alpho reports.

Known for its cutting-edge technology & quality, TSMC as the market leader is set to hike chip prices by up to 20% according to Wall Street Journal. This price surge would in turn go to the end customer of major technology outlets, such as that of Apple and Samsung. According to Gartner, the worldwide semiconductor shortage is expected to last until the second quarter of 2022.

Chart, sunburst chart

Description automatically generated While there is an array of international chipmaking firms, such as Intel, Broadcom and Nvidia, the vast majority of the semiconductor outsourcing market, also known as the foundry market, is dominated by Asia. In specific, the Taiwanese TSMC (Taiwan Semiconductor Manufacturing) has stolen the spotlight of the foundry market, which regards major tech giants including Apple, Qualcomm and Nvidia as its clients. In fact, TSMC accounted for 54% of the total foundry revenue on a global scale in 2020. The chart below, provided by TrendForce, exhibits the global market share of semiconductor contract manufacturers:

  • TSMC: 54%
  • Samsung: 17%
  • SMIC: 6%
  • Others: 14%

Adding up the figures, Asia clearly takes over the semiconductor chip playfield, accounting to 87% of the world’s total chip exports. The supernation is clearly Taiwan, with many companies outsourcing their chip manufacturing to the Asian nation.

However, it still is not clear whether the Asian dominance on the chip world will diminish, despite major investment plans from non-Asian makers such as Intel in scaling up production, in attempt to capture some of the Asian-dominated market share.

What are Semiconductors?

To get into the nitty gritty of it, semiconductors are silicon-made material products which conduct electricity more than an insulator, such as glass or wood, but less than a pure conductor, such as aluminum or steel. Semiconductors act like tiny electronic switches which run computations inside technology products. This sophisticated creation is found in thousands of electronic products, from gaming consoles and microwaves to datacenters powering the internet.

Lack of Semiconductors & The Impact of Chip Shortages

On a global scale, there has been a recent lack of semiconductor chips as automaker factories were forced to halt production amid the spread of COVID-19. This resulted in a big fraction of the workforce beginning to work from home, causing an explosive burst in demand for devices, and such demand was beyond what manufacturers could provide.

The semiconductor shortage has impacted many industries, especially the auto industry. This means delayed car delivery orders, and limited supply. Recently, Japanese automakers reported tumbling sales in China as the chip shortage hit vehicle production hard. Honda’s car sales in China for September were down 28% from the figure a year earlier, Nissan realized a 26% drop in September China-sold cars and Toyota witnessed a 36% decline. The semiconductor shortage has also hit many other industries, such as the smartphone world. Apple recently announced that they will likely slash production of its iPhone 13 by up to 10 million units due to the global chip drought, as chip suppliers including Broadcom and Texas Instruments are struggling to meet the overwhelming semiconductor chip demand.

Lưu Đỗ Hoàng Anh, Alpho Financial Analyst

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Low Expectations Ahead of Intel Report

Dow component Intel Corp. (INTC) reports Q2 2021 earnings after Thursday’s closing bell, with analysts expecting a profit of $1.07 per-share on $17.8 billion in revenue. If met, earnings-per-share (EPS) will mark an 18% profit decline compared to the same quarter in 2020. The stock sold off more than 5% in April after beating Q1 2021 estimates and lowering Q2 guidance. The 6.2% year-over-year revenue decline noted in that release stoked longstanding fears of market share losses to more nimble rivals.

Competition Grabbing Market Share

The semiconductor shortage is expected to have an adverse impact on Q2 earnings at the same time that Intel is committing major capital to foundry construction and expansion in the United States and overseas. Those plans now include more than $20 billion in investments for two plants in Arizona. The company is also engaged in talks to buy New York-based GlobalFoundries for an estimated $30 billion, in an attempt to add even more capacity as China redirects its vast chip resources into local production.

Competition has grown exponentially in the last two years while production and innovation have faltered, yielding market share losses that have contributed to poor stock performance. Advanced Micro Devices Inc. (AMD) and NVIDIA Corp (NVDA) processing chips have grown popular with formerly loyal customers while Taiwan Semiconductor Manufacturing Co. LTD (TSM) and Samsung Electronics Co. are spending a combined $216 billion to grow manufacturing capacity. None of these developments bode well for Intel in coming years.

Wall Street and Technical Outlook

Wall Street consensus has deteriorated from modestly bearish levels so far in 2021, with a ‘Hold’ rating now based upon 12 ‘Buy’, 1 ‘Overweight’, 17 ‘Hold’, and 3 ‘Underweight’ recommendations. More importantly, 8 analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $40 to a Street-high $85 while the stock is set to open Thursday’s session about $11 below the median $67 target.

Intel sold off from 76 in 2000 to 12 in 2009 and remains within those boundaries, more than 12 years later. The long-term recovery mounted the .786 Fibonacci selloff retracement level in January 2020 and failed the breakout during the pandemic decline. Bounces above this harmonic barrier in June 2020 and April 2021 also failed, reinforcing a nearly impenetrable barrier above 60. The stock is now trading at the dead center of the 18-month trading range, unlikely to reward longs or short sellers with a sustained trend.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Marketmind: “Ok, Who Leaked the Fed Minutes?”

The Day Ahead

While one would typically expect investors to trade cautiously a day before getting a better sense of what caused the hawkish shift at the U.S. Federal Reserve’s June meeting, the market price action was surprisingly decisive.

Government bond yields dropped, the dollar rose, the reflation trade and cyclical stocks got hammered and traders were suddenly ready to pay an extra premium for growth stocks, particularly tech, which sent the Nasdaq to new record highs.

Market participants were hard pressed to find a single catalyst for the mood swing but offered plenty of explanations.

COVID-19 fears (Delta variant surging), peak-growth fears (ISM showing a cooling in U.S. services), the Chinese crackdown on tech companies, falling oil prices (OPEC+ meeting): there was no shortage of possible triggers.

Another view is that the U.S. yield curve flattening, with U.S. 10-year notes dropping to their lowest since February at 1.34%, meant some investors were betting the Fed would tighten its policy pre-emptively to head off inflation.

There’s not much left to wait before the Fed minutes are published later on Wednesday. In the meantime, bond markets are calmer. Stock futures in Europe are slightly positive with no palpable sign of yesterday’s stress.

That’s good news for London’s stock market, which faces a test of its capacity to be a hub for fintech post Brexit with the listing of cross-border payments firm Wise.

Key developments that should provide more direction to markets on Wednesday:

– Samsung Electronics flags 53% jump in Q2 profit, tops estimates

– German May industrial output -0.3% m/m in May

– Germany to sell 5 bln euros of 5-year bonds

– UK Halifax fall for first time since January

– Japan coincident index first fall in 3 months

– France May current account

– U.S. May JOLTs job openings

– Thai central bank monetary policy report

– Riksbank deputy governor Henry Ohlsson talk on e-krona

For a look at all of today’s economic events, check out our economic calendar.

(Reporting by Julien Ponthus; Editing by Dhara Ranasinghe)


Samsung Raises Non-Memory Chip Investment Target as S.Korea Announces Bigger Tax Breaks

By Joyce Lee

Many countries are working to bolster local chip supply chains as the severe shortage affects production in industries such as autos, and in March U.S. President Joe Biden flagged plans to invest $50 billion in semiconductor manufacturing and research.

Some 153 chip companies including global No.1 and 2 memory chip makers Samsung Electronics and SK Hynix already have plans to invest a combined 510 trillion won or more between this year and 2030, according to the Korea Semiconductor Industry Association.

“As semiconductor competition intensifies around the world, it is clear that we also need to increase our competitiveness in the semiconductor industry,” South Korean President Moon Jae-in said earlier this week.

Samsung said on Thursday it would invest 171 trillion won ($151.10 billion) in non-memory chips through 2030, raising its previous investment target of 133 trillion won announced in 2019. It added that its third chip production line at Pyeongtaek, south of Seoul, will be completed in the second half of 2022.

SK Hynix said it is considering doubling 8-inch chip contract manufacturing capacity from a small base, adding that no final decision has been made.

The government will increase tax breaks to 6% from the current 3% or lower for capital expenditures between the second half of 2021 to 2024 for large corporations conducting “key strategic technology” including semiconductors, the ministry said in a statement.

The government will also offer about 1 trillion won in long-term loans for increasing 8-inch wafer chip contract manufacturing capacity and investment for materials and packaging.

Samsung Electronics, Hyundai Motor, the ministry and industry associations also agreed to join efforts to respond to the shortage of auto chips on Thursday, the presidential office said in its statement without providing any details.

($1 = 1,132.3400 won)

(Reporting by Joyce LeeEditing by Shri Navaratnam and Elaine Hardcastle)

Samsung Takes Back Smartphone Crown from Apple; Xiaomi Surges

By Aakriti Bhalla

China’s Xiaomi Corp clocked its best quarterly performance ever, with shipments surging 62% to 49 million phones and market share to 14%, taking it to the third position after Samsung and Apple.

Overall, global sales surged 27% to 347 million units in the first quarter as the Chinese economy opened up after the pandemic and a swift vaccine rollout in the United States raised hopes of an economic recovery.

South Korea’s Samsung shipped 76.5 million smartphones in the quarter to grab a 22% share of the market, Canalys said. The company on Thursday reported a 66% surge in quarterly profit in its mobile business, thanks to robust sales of its flagship Galaxy S21 smartphone series.

Canalys said Apple shipped 52.4 million iPhones in the January-March period, falling to the second spot with a 15% marketshare, after it wowed Chinese shoppers in the December quarter with its new 5G-enabled iPhone 12.

People upgrading to the new iPhone still drove sales, though, and the company said on Wednesday that overall sales to China nearly doubled.

Last year, people shopped for smartphones and gadgets as they stayed indoors because of the coronavirus pandemic, fuelling a global shortage in semiconductor chips that has roiled industries including autos and white goods.

“Supply of critical components, such as chipsets, has quickly become a major concern, and will hinder smartphone shipments in the coming quarters,” Stanton said.

Apple said on Wednesday that the chip shortage could cost the company $3 billion to $4 billion in revenue in the April-June quarter, affecting primarily iPads and Macbooks.

March-quarter smartphone shipments for China’s Oppo and Vivo brands also surged, Canalys said.

China’s Huawei, the former No. 1 that remains shackled by U.S. sanctions, took the seventh place with 18.6 million units after selling its Honor brand last year.

(Reporting by Aakriti Bhalla in Bengaluru; Editing by Sayantani Ghosh and Saumyadeb Chakrabarty)

Samsung Leader Jay Y. Lee Attends Trial Amid Calls for Pardon

By Joyce Lee

The 52-year-old head of the world’s biggest memory chip maker wore a dark suit and white shirt as he entered the courtroom for the hearing, media reported.

The heir to one of South Korea’s most powerful family-run business empires is accused of fraud and stock manipulation and could face a fresh jail term if convicted.

Pressure is mounting on the government to pardon Lee for a previous conviction of bribery and other offences, for which he has served half of a 30-month sentence.

Business lobby groups and some lawmakers say he should be freed to help South Korea secure supplies of coronavirus vaccines.

“Utilising Vice Chairman Lee’s global network will help in securing the COVID-19 vaccine,” Kwon Tae-shin, vice chairman of the Federation of Korean Industries, told Reuters.

A conservative opposition member of parliament, Park Jin, told Reuters South Korean investment in semiconductor production in the United States also could be leveraged to secure U.S. vaccines.

Samsung is considering building a $17 billion chip factory in the United States, while Seoul has noted its potential role in helping U.S. President Joe Biden preserve the global chip supply chain.

The United States has said its first priority is vaccinating Americans, although it has promised to look into options to help other countries bolster their supplies.

South Korean President Moon Jae-in is due to visit Washington for a summit with Biden next month.

South Korea has reported 116,661 coronavirus cases and 1,808 deaths from COVID-19, but just 3% of the population has been vaccinated due to problems with vaccine supplies.

(Reporting by Joyce Lee and Sangmi Cha; Editing by Jack Kim and Stephen Coates)

U.S. Group Verizon and South Korea’s Samsung Electronics Sign $6.65 Billion 5G Deal

Verizon Communications, an American multinational telecommunications conglomerate, and South Korean multinational electronics company Samsung Electronics have announced to sign a deal worth $6.65 billion for 5G network equipment and services.

“With this latest long-term strategic contract, we will continue to push the boundaries of 5G innovation to enhance mobile experiences for Verizon’s customers,” Samsung said in a statement, Reuters reported.

Samsung noted in a regulatory filing the period of the contract, which Samsung signed with Verizon, is from June 30, 2020 to end-2025, Reuters added.

Samsung Electronics shares rose over 3% to KRW 58,300 on Tuesday. On the other hand, Verizon’s shares rose 0.12% to $60.55 in after trading hours on Friday and the stock is up about 2% so far this year.

Verizon stock forecast

Eleven analysts forecast the average price in 12 months at $62.30 with a high forecast of $70.00 and a low forecast of $57.00. The average price target represents a 3.01% increase from the last price of $60.48. From those 11 analysts, five rated “Buy”, six rated “Hold” and none rated “Sell”, according to Tipranks.

Morgan Stanley gave a target price of $60 with a high of $71 under a bull-case scenario and $42 under the worst-case scenario. Verizon stock price forecast was raised by Deutsche Bank to $62 from $60.

Other equity analysts also recently updated their stock outlook. Verizon Communications had its price objective boosted by analysts at UBS Group to $60 from $59. The brokerage presently has a “neutral” rating on the cell phone carrier’s stock. Citigroup boosted their price objective to $60 from $55 and gave the stock a “neutral” rating. Oppenheimer reaffirmed a “buy” rating and set the price target at $70.

Analysts’ views

“Attractive business mix, as wireless market leader. Wireless service revenue 70% of consolidated revenue, and wireless EBITDA 85% of consolidated EBITDA. Dividend yield and potential buybacks provide some support, while the transition to 5G creates opportunities and risks, with mid-band spectrum needs in focus,” said Simon Flannery, equity analyst at Morgan Stanley.

“Our price target for Samsung Electronics is W70,000: We continue to employ a residual income (RI) valuation model, cross-checked against P/BV analysis. At our W70,000 price target, the 2021 P/B multiple would be 1.4x, which is in line with its long-term mid-cycle valuation level of 1.4x. Our terminal growth rate assumption is 5%, and we assume an 11.5% cost of equity, based on a beta of 1.0,” said Shawn Kim, equity analyst at Morgan Stanley.

Upside and Downside risks

Upside: 1) Continued strength in wireless. 2) Rates remain lower for longer. 3) Defensive market. 4) Developments around mobile video, and internet of things – highlighted Morgan Stanley.

Downside: 1) Rising interest rates make the dividend yield less attractive. 2) Competitive price pressure from wireless competitors. 3) Wireline business faces significant secular pressures. 4) Spectrum spend/M&A pressure Balance Sheet metrics.

Check out FX Empire’s earnings calendar

US/Sino Trade Talks Resume, EU Markets Remain Cautious, Futures Indicate A Flat Open For US Indices

Asian Markets Are Optimistic As Trade Talks Resume

Asian markets were broadly higher on Monday as trade talks resume between the world’s two largest economies. The talks are vice-ministerial level, began today and are being held in Beijing. China’s spokesperson for the Foreign Ministry says both sides have expressed a desire to make a deal and that China is ready to resolve these issues with the US on an equal footing.

China’s equity markets were the least bullish in Monday trading, rising about 0.75% in Shanghai and Hong Kong. In Hong Kong, China Mobile was among the top gainers advancing more than 1.10% on an upgrade from Nomura. Nomura says China Mobile is well positioned to dominate the 5G landscape in the region.

Other indices were more buoyant. The Japanese Nikkei rose nearly 2.45% on the news, led by the auto sector, with Toyota advancing 3.15%. In Korea, the Kospi gained 1.34% with shares of Samsung and Dongbu Steel leading the way. Samsung was up on news it had inked a deal with former rival Apple while Dongbu Steel jumped 30% after it announced a plan to increase investment in its shares.

Traders In EU Remain Cautious Despite Trade Optimism

Traders in the EU remain cautious on global growth concerns, Brexit uncertainty, and the US government shutdown. Slowing global growth is a major cause of the recent equities market correction and remains in the spotlight as data continues to come in weak. In today’s news, German factory orders fell more than expected. Analysts had bee looking for a decline near -0.2%, the actual was -1.0%.

As concerning as the manufacturing data is, it is mitigated by stronger than expected retail sales. Retail sales in Germany grew a full percentage point faster than expected, 1.4%, while YOY sales bucked expectations for a decline with a gain of 1.1%. Retail sales in the broader EU economy were also strong at 0.6% MOM but only as expected. YOY retail sales in the EU came in below consensus. EU equities indices were down across the board at midday, led by the French CAC with -0.65%.

US Futures Flat, Trade, FOMC, And Earnings Are In Focus

US futures indicated a flat open on Monday as traders wait for word on trade. With the US and China discussing the matter right now we can be assured of some headlines in the overnight hours going into Tuesday’s session. Traders are expecting some positive developments although nothing substantive is likely to develop at this time.

On the FOMC front, Fed Chief Jerome Powell did a lot to soothe frayed market nerves last week when he said the committee was patient and ready to alter its course if data supported that idea. In terms of data, Friday’s NFP report showed a massive gain in US employment and hourly earnings, one indication the Fed’s plan to continue hiking rates is still sound. This week’s data includes the FOMC minutes from the last meeting as well as a read on consumer level inflation, due out Friday.