Last Updated on March 16, 2021 by admin
The general slowdown that plagued much of the global economy in 2020 largely left the semiconductor sector untouched. But not only that, a shortage has led to a boom in the sector, and it looks set to continue this upward trend into next year.
Buoyed by both fears of a report of a shortage like that prior to 2018 to the increasing market need for more devices that utilize them as integral component parts, there does not seem to be an end in sight to tangible demand for this very necessary industrial product.
Of course, not all of this can be blamed on near-record demand. Production capacity has suffered somewhat as well with 2020 marking a particularly difficult year in the production of semiconductors. Yet, even as those issues are rectified, the ballooning demand for semiconductors in every industry from smartwatches to smart TVs and automobiles could mean that manufacturers are facing an extended period of growth in terms of bottom-line revenues.
Principal analyst at Lopez Research Maribel Lopez told MarketWatch, “Unless we have a major economic meltdown, which is obviously possible, one of the things that are happening right now is that almost anything you buy is going to have a chip in it. You can’t buy a dumb product.” In addition to new segments taking advantage of semiconductors and what they enable, traditional industries such as computers are also placing a markedly high demand on the semiconductor industry.
Another factor that is complicating manufacturing is the need for increasingly smaller and more sophisticated chips. Faced with a huge demand for current-gen technology as well as for what’s on the horizon, the industry finds itself weathering a storm of demand that, while enviable, requires careful maneuvering.
More recently, the announcement by major American automobile makers Ford and General Motors that they had to suspend production on some models due to a semiconductor shortage both illustrated the vast array of industries that now use them as well as how much of an impact this could have on the broader economy. This action even prompted a response by US President Joseph Biden to secure semiconductors as a strategic resource for the country and to promote a secure and stable supply chain for them.
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Of course, all of this is great news for the holders of semiconductor securities. With the boom times expected to continue on into the foreseeable future, many securities analysts are bullish across the sector. J.P. Morgan analyst Harlan Sur comments that “we believe semi companies are shipping 10% to 30% BELOW current demand levels and it will take at least 3-4 quarters for supply to catch up with demand and then another 1-2 quarters for inventories at customers/distribution channels to be replenished back to normal levels.”
Other analysts largely echo this optimistic sentiment but there are some pessimists that fear the shortage – and subsequent inflated demand – is due to practices such as double ordering. With companies fearful of the future supply of semiconductors in some cases, those most heavily reliant upon them might be clogging up the system with aggressive ordering practices intended to secure their supply.
