Semiconductor Long-term Investment Opportunities In Semiconductors | Money Mind | Semis
One such mega trend is working and learning from home. That’S created tremendous demand for uh connectivity and conferencing solutions for all of us and that’s driven demand, both in the cloud for these solutions that are allowing us to collaborate as well as end devices where pcs and tablets had the strongest growth year. They’Ve had in almost a decade another mega trend that will need semiconductors is the 5g revolution. The deployment of 5g infrastructure and 5g enabled smartphones promises, faster speeds and the ability to connect more devices at any one time 5g will allow us to leverage the full potential of advanced technologies like artificial intelligence, which is itself a mega trend, artificial intelligence and machine learning And then, in the in the mobile space 5g and the 5g rollout that’s happening across infrastructure and end smartphone devices. These really are the two key pillars of new application growth that are happening over the next five to ten years. It’S really underpinning the big data era that we talk about 5g and ai are also expected to drive the development of another mega trend, self driving or autonomous vehicles. 5G connected automated cars will be able to talk with one another with their surrounding infrastructure and with traffic signals. The ic content in these autonomous vehicles is huge because it’s, essentially a computer on wheels. All of that, actually, you know, ends up to be a huge huge driver for the semiconductor market across many many segments data from the semiconductor industry association, which represents the u.
s semiconductor industry, also suggests improving sales. This year, after a dismal outing in 2019, where sales fell 12.1 percent from a record year in 2018, global semiconductor sales are expected to go up in 2020 and 2021. question is: can supply keep up with the demand? The chip making industry has always found it difficult to cope with sudden spikes in demand. The lead time between investing to raise capacity and that capacity coming online can be as much as 9 to 12 months says. Micron. There are many shortages in many segments, ranging from automotive to memory. This shortage that we’re seeing in the market will persist throughout the year and we are probably going to see uh price increases. Because of that, however, we also see the market leaders such as tsmc has increased their capex expansion plan for 50 this year, which is at historical high, and we also see that domestic chinese players are increasingly stepping up their capex expansions very aggressively tensions between the us And mainland china could heighten the supply crunch in the industry. Already, the automotive industry is feeling the chill the sector has had to compete with other industries for chips. This has led to concerns that the lack of chips will derail the autonomous vehicle megatrend and even any of the other megatrends. As far as the mega trends are concerned, they’re here to stay i mean i don’t see you know any changes in the direction there. However, what i’m worried is that you know when u.
s you know, builds this trade wall and starts decoupling with the supply chain with china right that will prevent the globally based semiconductors and equipment companies, including the chinese, the full resources they need to fund r d and Also, to move faster and, of course, if that happens, this could lead into slower innovation and slower growth in the electronics industry. So for now, market observers believe that the different megatrend themes remain intact and hence the demand for semiconductors will be supported by these trends. But chips are a component of the technology and not the technology itself. To some investors, chips are like a commodity and they may wonder how chip players can even command a premium. The semiconductor is not only an input to the technology, it is also an enabler for the technology. It has to evolve very fast to keep up the pace with the soft layer development. We do see the leading players command a handsome premium over the peers for their technology advantage, for instance, the market leader tsn tsmc. They command a gross margin of 53, which is higher than that of apple, but how do investors know which companies to invest in? We like the domestic chinese players with mature technology, which can benefit from a increasing demand for self sufficiency. A case in point is the company called semiconductor that we prospect view china fund owns the second type of company. We like is the true market leaders with the technology advantages, including tsmc.
They can weather through different cycles of the industry and bring investors a satisfactory return over a long period of time going with the leaders makes sense because of the industry dynamics. In this space. The sector has seen a fair bit of consolidation over the last five years, and a couple of big players with pricing power have emerged today. There’S only three companies that are really still pursuing the leading edge, that’s, tsmc, that’s, samsung and intel the rest are going to be more dependent on these companies to build their or manufacture the chips that they design. The philadelphia semiconductor index tracks 30 of the biggest semiconductor companies as of january, the 26th. The index has a year to date, return of 8.45 and a one year return of 60.