Anton Startsev, senior analyst at MKB Investments
Recently in the news stream there are more and more reports about the shortage of microchips in the global market. The attention of the general public is concentrated mainly on the automotive sector, which creates the illusion of a local nature of the problem, but the acceleration of demand growth with limited opportunities to increase supply in the market of semiconductor microcomponents, in our opinion, makes us think about the possibility of a significant transformation of the market as a whole. Here we try to give an overall picture from an investor’s perspective, without implying any investment recommendations.
Demand : acceleration after lockdown
The past year has required semiconductor industry players to effectively adapt to the rapidly changing demand structure. The first wave of "lockdowns" was a factor in the decline in demand from certain industries (for example, the automotive industry), but at the same time, the rapid growth in the segment of computers and mobile devices due to the departure of a significant part of the global economy from offline to online. As early as the third quarter, offline demand began to rebound, which, combined with continued online activity, drove double-digit revenue growth for the largest contract manufacturers (foundry) for the year.
Rate of change in revenue in $ year to year by the three manufacturers
The stock market is not left out
The situation in the semiconductor industry has not gone unnoticed by investors. The SP 500 Semiconductors Semiconductor Equipment industry stock index, which reflects the value dynamics of the sector’s major players represented on U.S. exchanges, rose 42% over the past year versus a 16% increase in the SP 500 index, which corresponds to the "broad market." Customers of MKB Investments were able to capitalize on the outperformance of the semiconductor and equipment sector by investing in units of the Technology Perspective fund: the unit value (in rubles) rose by 46.4% over the past year.
We believe that the transformation of the microchip market structure is a developing story that promises investors not only periods of excessive price fluctuations (increased volatility), but also growth potential in the long term.