Home » Semiconductors the new oil of the digital revolution? The giant TSMC will raise prices by up to 20%

Semiconductors the new oil of the digital revolution? The giant TSMC will raise prices by up to 20%

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In addition to being increasingly unavailable, chips will also become more expensive. The colossus Taiwan Semiconductor Manufacturing Company (TSMC), which covers a worldwide market share of around 30%, will increase prices between 10% and 20% with effect between the end of 2021 and the beginning of 2022, according to what is reported by the Wall Street Journal. A hard blow for its customers ranging from the automotive industry to the technology sector, who will have to deal not only with supply bottlenecks but also with higher prices. On the other hand, semi-conductors have become fundamental in the economy of innovation. According to a recent report by the Capital International Group, semiconductors would be the “new oil” without which it would not be possible to set the digital revolution in motion.

Certainly, the chip shortage has turned the spotlight on this industry that has seen the rise valuations towards extreme levels compared to historical averages. Semiconductors have steadily gotten more expensive over the past 10 years as the price-to-sales (P / E) ratio has increased from less than 2 during the global financial crisis to more than 7 today. And this at a time when gross margins have risen, in some cases, by 20%.

Price / sales multiples in the semiconductor sector

“We have therefore witnessed a large expansion of the EPs, often difficult to justify – he comments Mark Hawtin, Investment Director and manager of GAM’s GAM Star Disruptive Growth – A price-to-sales ratio of 7 is in line with that of more mature and established software companies. It is comparable in terms of the growth and maturity profile of these companies, but the software has much higher gross margins ”. The expert’s advice, therefore, is that of be careful not to generalize. “In our opinion – continues the expert – investment decisions in the semiconductor market should no longer be based on the sector in general, but more specifically on the individual industry. (…) This does not mean completely excluding semiconductor companies. On the contrary, we note interesting opportunities in companies able to benefit from Digital 4.0. In particular, companies exposed to developments in 5G, the Internet of Things (IoT), data and artificial intelligence (AI) could offer interesting investment potential “.

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Expected chip prices, what implications?

Returning to the TSMC news, if confirmed, the increase will have the effect of a cascading price increase from the Taiwanese company’s customers, which include the majority of semiconductor companies globally, such as Infineon and STMicroelectronics, and some major device manufacturers, such as Apple. This, in turn, could also translate into an increase in their margins, but not for everyone. “Infineon and STM, which boast an integrated model with internal production that exceeds 70% of volumes, in which they have continuously invested even during the Covid phase, should benefit from a greater increase in the top line with price increases accompanied by operating leverage. and improvement in margins ”, indicated by Equita.

The repercussions on the auto sector, production volumes to be revised downwards

In the automotive industry, sustained growth in demand for chips is expected over the long term, linked to the development of autonomous driving. Recent research from Arete found that light vehicle semiconductor content increased from $ 310 per car in 2015 to $ 397 per car in 2019, with a modest annual composite growth rate of 6.4% (CAGR). . Growth is expected to accelerate to $ 630 per car over the next five years, with a CAGR of nearly 10%.

From here it is clear how the lack of chips can weigh on the auto sector, forced to stop production or slow it down due to a lack of semiconductors and other components. In this regard, Equita analysts believe that the 2021 estimates of the auto sector are to be filed. “We believe this is a temporary situation, knowing that the low level of stocks along the entire supply chain will require a recovery at the production level in the coming quarters as soon as the supplies of components return to normal – explain from the Milanese company – however, an impact on the numbers the second half seems inevitable “.

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Stellantis stops the Sevel factory for a week

Precisely in this context, Stellantis would have decided to stop its Sevel plant for a week, where light commercial vehicles are produced. Several press agencies cite Ferdinando Uliano, national secretary of Fim-Cisl, who, after the notice received by the group, would have said: “For some time we have been worried about the situation that is being created on the semiconductor front in the automotive sector. As Fim-Cisl, we also denounced this risk to the Government, which is added to the already complicated situation of the automotive sector involved in a strong change, with strong risks of employment impact. Today’s communication from Stellantis worries us enormously, stopping Sevel for a continuous week means that the situation has worsened particularly on the supply side, ”said Uliano.

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