The Chips Are Down: Risks And Opportunities

Australia | Oct 15 2021

The global semiconductor shortage is wreaking havoc in global industries, creating opportunities for ASX-listed companies.

-The new oil
-Some Australian companies particularly exposed to shortages
-Others may find a silver lining to the chip cloud 

By Nikhil Gangaram

As the proverbial song goes, “from little things, big things grow”.

In this particular case, the "big things" are billion-dollar losses as companies around the world suffer supply-chain problems. The catalyst: the humble semiconductor.

In today’s hyper-connected world, semiconductors (known as chips) are essential building blocks that allow electronic devices to process data. 

A shortage of semiconductors has sent shock waves through the global economy, squeezing supplies of everything from headphones to engineering equipment, making them a hot commodity.

Globally, car companies alone have had roughly -US$80bn wiped from their bottom line.  

This scarcity has huge and varied direct and indirect implications for the bottom line of many companies listed on the ASX.

But it also presents a unique opportunity for a handful of Aussie companies.

The new oil

Akin to the importance of oxygen to humans, semiconductors are integral to all high technology devices, from phones and laptops to medical devices and aircrafts.

Modern automobiles require more than 100 chips and related electronics, and reliance is expected to increase with the evolution of electric vehicles.  

The current shortage in semiconductors has stemmed from plummeting supply and a huge hike in demand.

Fuelled by the COVID-19 pandemic, factory shutdowns and social distancing requirements have disrupted production, throwing international supply chains into disarray.

Early signs of fluctuating supply led many companies to stockpile and place advance orders for chips.

Consumers working from home exacerbated the problem as they flocked to gather computers, web-cams and consoles.

The global shortage goes beyond simple supply and demand economics. There are many layers of complexity that have made it harder for manufacturers to accelerate production.

Despite generating more than $110 billion in revenue each year, the semiconductor industry is structurally inflexible, with the majority of supply largely reliant on just two companies.

According to data by Taipei-based research firm TrendForce, Taiwan’s TSMC makes up more than half of the semiconductor manufacturing industry, followed by South Korea’s Samsung.

Another issue is the manufacturing process.

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