U.S. tech companies and their reliance on Taiwan

Taiwanese chipmakers are forward of their worldwide rivals and it will likely be powerful for U.S. tech companies to scale back their reliance on Taiwan, mentioned Sebastian Hou from CLSA.

Tech companies like Apple, Amazon, Google in addition to Qualcomm, NVIDIA and AMD rely closely on Taiwanese contract producers to supply as much as 90% of their chips, in line with Hou, who’s managing director and head of tech analysis on the brokerage agency.

“It’s going to be a challenging and long journey for them to diversify away, and thinking about how long it takes for the chip development and cooperation — it’s going to take a while,” he mentioned Monday on CNBC’s “Street Signs Asia.

Semiconductors are utilized in the whole lot, from smartphones and computer systems to vehicles in addition to house home equipment.

While the United States dominates the worldwide semiconductor market share by income, Asia is the manufacturing powerhouse, in line with a latest report from Bank of America. Asian nations produce greater than 70% of worldwide semiconductors — Taiwan and South Korea, specifically, have established unequalled positions in high-end chip manufacturing capability, the report mentioned.

A person walks previous TSMC’s brand on the firm’s headquarters in Hsinchu, Taiwan. TSMC is the world’s largest semiconductor foundry.

Sam Yeh | AFP | Getty Images

Upside for Taiwan chipmakers

Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest chip foundry, is up greater than 13% year-to-date. Its rival United Microelectronics Corp — seen as a distant second to TSMC in Taiwan’s contract chip manufacturing house — is up about 16% in the identical interval.

CLSA has a “buy” ranking on TSMC and a value goal of 825 New Taiwan {dollars} ($28.97) — that is a 35% upside from Friday’s shut.

The brokerage has an “outperform” ranking on UMC and a value goal of 62 New Taiwan ($2.18), a 16.76% upside from final week’s shut.

Hou defined that between the 2 shares, TSMC has the next danger — as a result of a wider unfold between its goal value and present share value — but it surely provides larger returns. He added that the value goal is “highly achievable” for the reason that firm is predicted to take care of expertise management over the subsequent 5 years and prospects are set to rely closely on it.

China’s SMIC lagging

A report from market research firm TrendForce ranked China’s Semiconductor Manufacturing International Corporation (SMIC) fifth by income among the many world’s prime 10 foundries in February, primarily based on estimated first quarter numbers.

SMIC is China’s largest and most important chipmaker — it’s seen as key to Beijing’s plans for self-sufficiency within the semiconductor house, following tensions with Washington. Last December, the U.S. blacklisted SMIC, and restricted American companies from exporting expertise to the agency.

Hou defined that it’s nearly unattainable for SMIC to meet up with TSMC and different chipmakers in mild of the U.S. sanctions.

The expertise hole between SMIC and TSMC is at present about six years, he mentioned. If SMIC can’t purchase the expertise it must bolster its high-end chip manufacturing capability, it can fall behind even additional, Hou mentioned.

“Which means, it not only cannot catch up, but the gap will further be widened,” Hou mentioned, including the hole might prolong to between seven to 9 years.

A report last month from Reuters mentioned the U.S. authorities has been gradual to approve licenses for American companies to promote chipmaking gear to SMIC.