Chips Are Back. But Not Equally or for Everyone

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In six months, the global semiconductor industry has transformed from one of the hottest sectors to one of the hardest hit and bruised. Recession, continued Covid lockdown in China, escalating tensions across the Taiwan Strait and stricter rules from Washington canceled nearly 2 trillion registered chipmakers Dollars.

Now they are back. The dramatic changes over the past month have added $ 600 billion to the value of these companies. The recovery is not evenly distributed, with some geographies and product sections doing better than others.

An analysis by Bloomberg Opinion of more than 220 listed global chip companies with a market value of at least $ 1 billion found that investors had eased concerns over the US government’s strict rules on technology transfer to China. . Meanwhile, semiconductor players in the world’s second-largest economy are getting worse, despite recent changes to ease Covid Zero and boost the domestic economy.

The Biden administration announced earlier this month that it would stop access to the software, software and support that Chinese chipmakers use to make components at 14-nanometers or better. Currently, most capacities are at 28-nanometers or older, but the new law aims to ensure Beijing fails to catch up with the United States and its allies. Shares of equipment and service providers such as Lam Research Corp. Fell amid fears that China would soon cross the border.

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Chip designers like Nvidia Corp. And Advanced Micro Devices Inc. Also suffered the belief that Chinese customers would not be allowed to buy their advanced accessories used to run artificial intelligence and high-performance computer systems. Equally, these shifts are supposed to boost China’s domestic chip players as the industry benefits from government support aimed at shifting the balance away from foreign companies.

Investors now see it differently. In the last month, the average weighted return of the global semiconductor sector rose 21%. The sector is still down about 30% for the year, with only two names among the mid-size and large companies looking for growth (GlobalFoundries Inc. and On Semiconductor Corp.).

Nvidia and AMD, along with Dutch device maker ASML Holding NV, are leading the way. In fact, it was the bigger players – with a market value of over $ 100 billion – who were the main beneficiaries of the move, growing by an average of 23.5%. This could be a sign that investors are ready to return but want to stick with the Blue-chip name: Taiwan Semiconductor Manufacturing Co. Added to its market value by nearly $ 70 billion last month. Small companies, which we define as between $ 1 billion and $ 10 billion, are slow companies.

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Please note that we have removed Samsung Electronics Co. From our analysis, because even though it is a major chip maker, less than a third of its revenue comes from electronics.

Perhaps the biggest sign that investors do not care about the strict regulations on sales to China is the fact that the top seven performers out of the top 10 performers are related equipment or service providers. These companies also have the potential to be among the biggest losers after major names including TSMC, Intel Corp. And SK Hynix Inc. Have cut their spending budget for the year, citing supply problems and a worsening economic outlook. But rather than canceling orders, it looks increasingly likely that chipmakers will just push their purchases next year in anticipation of long-term growth.

Although smaller than the average Taiwanese and US chipmakers, the number of Chinese listed companies makes the country a major player in global capital markets, although it has not yet turned. To be part of the supply chain.

The huge increase is largely due to Chinese leader Xi Jinping’s plan to boost the domestic sector, complete with favorable treatment and government spending. That should be positive for the industry. But investors do not seem to believe it will bring much benefit, even as the United States is working harder to cut the world’s most populous country out of the rest of the world. Aside from South Korea, which has been heavily reliant on the volatile memory chip business, Chinese semiconductor companies have been slow to recover among their US, Japanese and Taiwanese counterparts.

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The sharp drop in chipmakers until the middle of this year is a strong warning for investors and industry not to take up the sector. But as the dust settled, the tensions cooled and world leaders reunited, the same reason for falling in love with chips began to reappear. Until the next crisis.

More from this author and others at the Bloomberg Opinion:

• These strict Chinese chip rules are timed horribly: Tim Culpan

The car industry is the best hope of the economy right now: Conor Sen

Apple chip replacement is as marketable as technology: Tim Culpan

This column does not necessarily reflect the opinion of the Editorial Board or Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology in Asia. Previously, he was a technology news reporter for Bloomberg News.

More such stories are available at bloomberg.com/opinion

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