|Bid||0.00 x 18200|
|Ask||0.00 x 4300|
|Day's Range||117.24 - 121.52|
|52 Week Range||79.04 - 132.68|
|Beta (5Y Monthly)||1.70|
|PE Ratio (TTM)||N/A|
|Earnings Date||Aug 05, 2021|
|Forward Dividend & Yield||3.00 (2.54%)|
|Ex-Dividend Date||Jul 15, 2020|
|1y Target Est||251.52|
(Bloomberg) -- A century after automakers showed the world the value of assembly-line manufacturing, a shortage of semiconductors is teaching the industry a painful new lesson in what it takes to build a car.For most of its history, the industry has relied on a distinct approach to buying car parts, procuring components from suppliers right at the moment they’re needed. It’s referred to as just-in-time manufacturing and is designed to streamline production and eliminate the costs of keeping warehouses stocked with parts waiting to be used.But the shortcomings of that system were made starkly clear this year as the automakers confronted a dearth of the chips they need to build advanced functions into their vehicles, and found themselves near the bottom of chipmakers’ customer lists because of their just-in-time approach. That shortage is threatening to cut $110 billion in sales from the industry, and forcing auto manufacturers to overhaul the way they get the electronic components that have become critical to contemporary car design.“Customers need to change,” said Hassane El-Khoury, chief executive officer of ON Semiconductor Corp., which gets more than a third of its revenue from the automotive market. “That just-in-time mindset doesn’t work.”Semiconductor makers are demanding guaranteed, long-term orders rather than the short-term flexibility the carmakers are used to. The chipmakers’ assertiveness, even under pressure from lawmakers, underscores the rebalancing of power from the companies whose logos are on the cars to those that provide the advanced technology that runs them.As these components play a bigger role in everything from in-car entertainment to self-driving functions, chip manufacturers say they’re willing to invest in expanding production to head off a repeat of shortages that have forced the industry to mothball factories and furlough workers -- if the carmakers give them orders that can’t be canceled and commit to long-term agreements.“Why would I have invested a single dollar when my customer can cancel within 30 days and it takes me two years to build capacity?” ON Semiconductor’s El-Khoury said.There are signs the industry is listening. Last week, Ford Motor Co. Chief Executive Officer Jim Farley indicated a new willingness to reverse decades of outsourcing for parts.“As the industry changes, we have to in-source now, just like we in-sourced powertrains in the ’20s and ’30s,” said Farley, who has shut down half his factories and seen his dealers’ lots emptying because of a dearth of chips.Most components used by the auto industry are part of a discrete food chain, and carmakers are at the top, able to orchestrate their suppliers’ actions in a system that delivers them a set of components that can be put together quickly and cheaply into a finished vehicle. Electronics makers, who’ve fared much better in the chip supply crunch, regard semiconductors as essential systems, and they work directly with chipmakers to secure products and often design their devices around the chips themselves.Automakers can no longer “assume the dominance of an 800-pound gorilla” in negotiations with chip companies and battery makers, said Mark Wakefield, head of the auto practice at consultancy AlixParters.Pioneered by Toyota Motor Corp. in the 1960s, just-in-time is a system where components suppliers are required to turn up with whatever the carmakers want at the last possible moment in a process that pares costs to the very minimum.That strategy has served the industry well, saving money and helping it organize a system for sourcing the 40,000 or so components that go into a modern vehicle, many of which can be made in a matter of days. But semiconductors -- the heart of sensors, engine management and battery controllers, infotainment and eventually systems that will pilot vehicles -- are created in a process that takes months. And building and equipping a factory to produce them requires years.Today’s cars contain an average of 1,400 semiconductors -- and that puts the chipmakers at an advantage. Ford’s Farley said he’s now negotiating contracts directly with chipmakers -- bypassing his traditional auto suppliers -- while building up inventory of the precious pieces and even redesigning models to accommodate the semiconductor companies.“We have learned a lot through this crisis that can be applied to many critical components,” Farley told analysts last month as he announced Ford would lose half its production in the second quarter and take a $2.5 billion hit to earnings this year, citing a lack of chips. “We’re also thinking about what this means for the world of batteries and silicon and all sorts of other components that are really mission critical for our company.”Ford is not alone in seeking solutions that upend long-time industry practices. Automakers from General Motors Co. to Volkswagen AG to Tesla Inc. are looking for ways to get closer to the chipmaking process, which could include forming partnerships with semiconductor companies, bringing chipmaking in-house and even building their own foundries. Nothing is off the table.“Cars are only going to get more technical and they’re going to need more chips,” said Sam Fiorani, vice president of vehicle forecasting at consultant AutoForecast Solutions. “All of the vehicle manufacturers are looking at every possible scenario for getting it solved for the long-term.”But according to some chipmakers, the auto industry has embraced new technology but failed to understand those that supply it.“There is a huge difference between manufacturing a car and manufacturing a chip,” said Kurt Sievers, CEO of NXP Semiconductor NV, the biggest maker of auto chips. “We’ve been working for years closely with the auto OEMs directly when it comes to R&D and innovation -- however, not at all for supply chain and volume forecasting.”Sievers said the chip industry wants specific forecasts that stretch out in years and binding commitments to buy chips that last that long. The way automakers, referred to as original equipment manufacturers or OEMs, and semiconductor vendors work together needs to change, he said.And the car companies have little choice but to do so. Consumers are increasingly choosing vehicles based on functions such as connectivity, entertainment and advanced automated safety features. The auto industry is steadily shifting away from gasoline to battery power. All of that requires more chips.“It’s no longer this subsystem that no one cares about,” said Victor Peng, CEO of Xilinx Inc. a chipmaker whose products are uses in advanced driver-assistance systems. “The electronics is really going to shape the customer experience.”The semiconductor industry has plenty of other orders to fill. In 2020 automakers bought almost $40 billion worth of chips, little changed from the prior year, even amid the crash of the pandemic. By comparison, the computer industry bought 17% more chips than it did in 2019, for a total of $160 billion. Phone makers, meantime, provided the chip industry with $137 billion in revenue, a jump of 12%.Earlier this year, automakers lobbied U.S. lawmakers to intervene to help them with the shortage, arguing that chipmakers were unfairly prioritizing customers building less important consumer electronics over cars. The automakers argue their industry creates more than 7 million jobs in America and is critical to national security. And they’ve found a sympathetic ear in President Joe Biden, who was supported by the United Auto Workers in the 2020 election, and is working to help the auto industry navigate the chip crisis.Still, consumer electronics buys $20 billion more chips a year than the auto industry, and Big Tech has plenty of clout in Washington, too.Chipmakers are also in no hurry to add new factories to meet this year’s chip rush. Though 2020 was a good year and 2021 is shaping up to be even better, they don’t have to look back very far to be reminded of the difficulties of matching supply with short-term fluctuations in demand. In 2019 industry sales shrank 12% as customers slashed orders to work through stockpiles.Many investors and analysts are already concerned that what now looks like insatiable demand is customers double-ordering: asking for twice the amount they need so they can at least get the number they want. In the past, such heavy ordering has proved to foreshadow industry gluts, with demand eventually easing and buyers tapping the brakes as they worked down accumulated inventory.“We came out of 2018 guns blazing, everybody hoarded, and then 2019 was an awful year of demand because they already had chips,” said ON Semiconductor’s El Khoury. “Here we are today with people looking at us and asking, ‘why haven’t you invested?’”The type of chip automakers want also works against them. Much of what they use -- things such as sensors and power regulators -- can be made on what’s called lagging nodes, or production technology that hasn’t been state-of-the-art for years. While that makes it cheaper, chipmakers are reluctant to expand capacity of technology that’s closer to being obsolete.“The chips that the automotive industry uses are older than the ones you’d find in your cell phones or in your video games,” said AutoForecast Solutions’ Fiorani. “That makes them less of a priority to the companies that produce them.”Fiorani said carmakers would be better served forming joint ventures with chipmakers to tap their expertise and lock down a dependable source of supply. But doing that would involve going around traditional suppliers such as Continental AG and Robert Bosch AG and turning back the clock to a more expensive time when companies like Ford had to deal with suppliers for raw materials.Some auto suppliers are already taking steps to make sure they don’t get cut out. Parts supplier Robert Bosch is opening a new chip factory in Dresden that it says is the first of its kind dedicated to manufacturing semiconductors for automotive uses. Still, some automakers are already talking openly about cutting out those middlemen in order to keep up with the speed of change.“We will be the one who has the commercial relationship with the chipmaker,” Volvo Cars CEO Hakan Samuelsson said at a mobility conference in Tel Aviv this month. “When we want a change and you have to talk to suppliers, it is too slow.”Ford’s Farley said he’s consulted with tech companies and discovered how common it is in other industries to keep “buffer stock” and to buy directly from chip manufacturers.“Even if the company still buys the components with chips on them from a supplier, they still negotiated a direct deal,” he told analysts, describing something that’s common practice for companies like Apple Inc. Ford learned that nine of its tier-one component suppliers rely on just one Renesas Electronics Corp. factory in Japan for chips, a plant that suffered a fire, he said.Some automakers have made rapid progress in understanding their newer suppliers and are negotiating long-term deals. Others are sticking to the belief that they can dictate how their suppliers should act, according to ON Semiconductor’s El-Khoudry.Learning from their current difficulties is the key to turning around the current crisis and avoiding the next, according to Xilinx’s Peng. Toyota, the inventor of just-in-time, said it expects to return to pre-pandemic levels of profitability as soon as this year, helped by factories that continue to churn out vehicles because the company made the decision to accumulate stockpiles of chips.“People have to think differently or they’re going to be left behind,” Peng said.More stories like this are available on bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Taiwan Semiconductor Manufacturing Co. warned that a global shortage of semiconductors across industries from automaking to consumer electronics may extend into 2022, prompting the linchpin chipmaker to lift targets on spending and growth for this year.The world’s largest contract chipmaker said Thursday that its auto industry clients can expect chip shortages to begin easing next quarter, alleviating some of the supply disruptions that have forced the likes of General Motors Co. and Ford Motor Co. to curtail production. But overall deficits of critical semiconductors will last throughout 2021 and potentially into next year, Chief Executive Officer C.C. Wei told analysts on a conference call.TSMC now expects investments of about $30 billion on capacity expansions and upgrades this year, up from a previous forecast for as much as $28 billion, Chief Financial Officer Wendell Huang said. It foresees sales in the June quarter at a better-than-projected $12.9 billion to $13.2 billion, driving full-year revenue growth of 20% in dollar terms -- ahead of the “mid-teens” growth predicted in January.But the increased spending means its target for gross margins this quarter came in below expectations at 49.5% to 51.5%, spurring concerns about the longer-term impact on profitability. TSMC’s shares slipped 1.8% in Taipei on Friday, their biggest intraday loss in about three weeks.“The capex boost is a mixed bag with better long-term growth but lower margins,” Morgan Stanley analysts wrote.What Bloomberg Intelligence SaysLarge depreciation costs from new 5-nm production equipment may lower gross margin by 2%, while slower-than-expected production efficiency improvement implies that gross margin will continue to contract, possibly to under 50% in 2Q.- Charles Shum and Simon Chan, analystsClick here for the research.TSMC joins a growing number of industry giants from Continental AG to Renesas Electronics Corp. and Foxconn Technology Group that warned of longer-than-anticipated deficits thanks to unprecedented demand for everything from cars to game consoles and mobile devices. While Taiwan’s largest chipmaker has kept its fabs running at “over 100% utilization,” the firm doesn’t have enough capacity to satisfy all its customers and it has pledged to invest $100 billion over the next three years to expand.“We see the demand continue to be high,” Wei said. “In 2023, I hope we can offer more capacity to support our customers. At that time, we’ll start to see the supply chain tightness release a little bit.”Read more: See How a Chip Shortage Snarled Everything From Phones to CarsSemiconductor shortages are cascading through the global economy. Automakers like Ford, Nissan Motor Co.and Volkswagen AG have already scaled back production, leading to estimates for more than $60 billion in lost revenue for the industry this year. The situation is likely get worse before it gets better: a rare winter storm in Texas knocked out swaths of U.S. production, while a fire at a key Japan factory will shut the facility for a month. Rival chipmaker Samsung Electronics Co. warned of a “serious imbalance” in the industry.With major American carmakers and other gadget suppliers facing a prolonged shortage of chips, U.S. President Joe Biden has proposed $50 billion to bolster semiconductor research and manufacturing at home. The initiative could aid TSMC’s plan to build a cutting-edge fab in Arizona this year that could cost $12 billion.TSMC is “happy” to support chip manufacturing in the U.S., though research and development and the majority of production will continue to remain in Taiwan, executives said on Thursday. They reiterated that construction of their plant in Arizona will begin this year.Read more: Why Shortages of a $1 Chip Sparked Crisis in Global EconomyNet income for the January-March period climbed 19% to NT$139.7 billion ($4.9 billion), beating the average analyst estimate, buoyed by demand for high-performance computing (HPC) equipment and a milder seasonal effect on smartphone demand. Gross margin for the quarter eased to 52.4% from 54% in the three months prior, due in part to relatively lower levels of utilization and exchange-rate fluctuations. First-quarter revenue rose 17% to NT$362.4 billion, according to a company statement last week.The company said Thursday it now expects to be able to achieve the higher end of its compound annual growth rate target of 10% to 15% for the five years to 2025, citing its investment spending plans.“TSMC’s statement that the chip crunch may spill into 2022 will smooth over concerns that chip demand may fall on overbooking later this year and further boost investors’ confidence in the overall semiconductor demand in the long run,” said Elsa Cheng, an analyst at GF Securities.Shares of TSMC have more than doubled over the past year.TSMC’s most-advanced technologies continued to account for nearly half of revenue in the March quarter, with 5-nanometer and 7-nanometer processes contributing 14% and 35% of sales, respectively. By business segment, its smartphone business amounted for about 45% of revenue, while HPC increased to more than a third, reflecting sustained demand for devices and internet servers even as economies start to emerge from the pandemic.“We are seeing stronger engagement with more customers on 5-nm and 3-nm, in fact the engagement is so strong that we have to really prepare the capacity for it,” Wei said. Smartphones and HPC will be the main drivers for demand of 5-nm, which will contribute around 20% of wafer revenue this year.TSMC Is On Fire. Just Beware of the Flames: Tim Culpan(Updates with share action from the fourth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- Hon Hai Precision Industry Co. warned that component shortages could persist till 2022 and affect under a tenth of its shipments, amplifying concerns that a global chip crunch could extend well beyond this year.The assembler of most of the world’s iPhones follows fellow electronics giants that have in recent months suggested a global shortage of semiconductors could be more severe than anticipated, disrupting production of everything from cars to phones. Hon Hai made its projection, which didn’t specify the extent of the hit to its revenue, after reporting quarterly profit that disappointed investors. Its shares slid as much as 3.9% Wednesday.Samsung this month became the largest technology giant to voice concerns about chip shortages spreading beyond the automaking industry, the first to get hit because car companies underestimated a post-Covid surge in global orders. Continental AG, Renesas Electronics Corp. and Innolux Corp. have in recent weeks warned of longer-than-expected deficits thanks to unprecedented Covid-era demand for everything from vehicles to game consoles and mobile devices.Chairman Young Liu said that shortages appear to be growing worse and could last into next year. While Hon Hai is Apple Inc.’s most important production partner, he didn’t specify how or whether the iPhone maker would be affected. But he said that, based on what he’d read, the deficit may extend into 2022.“The impact of shortages in the first two months of the quarter have not been too obvious, because our customers are major companies,” Liu said on a conference call. “Still we are seeing some gradual changes and are monitoring the situation cautiously. Our expectations are that there won’t be a big impact, under 10%.”See How a Chip Shortage Snarled Everything From Phones to CarsHon Hai, known as Foxconn Technology Group, said net income for the quarter ended December declined 3.7% to NT$46 billion ($1.6 billion), slightly below the NT$50.2 billion average of analyst estimates.Earnings in the previous three months had been driven mainly by new smartphones from Apple, and as demand for home computing equipment remained elevated. But the Taiwanese assembler is casting around for new growth drivers a year into the pandemic and it’s identified electric vehicles as a key emerging industry, joining a rush of technology firms seeking a foothold in auto manufacturing ahead of Apple’s own smart vehicle efforts.Revenue in the three months ended December rose 15% to NT$2 trillion, reflecting contributions from the iPhone 12 series, whose launch last year had been delayed due to Covid-19, previously disclosed figures showed. Sales of all business lines likely grew in the first quarter, the company said in a presentation earlier this month, when it revealed record monthly sales for February.Read more: Samsung Warns of Severe Chip Crunch While Delaying Key PhoneWhat Bloomberg Intelligence SaysHon Hai’s sales growth in 2021 may still accelerate to about 7% from 0.3% in 2020, in our opinion, despite its shipments still being delayed by component shortages for the next six months. The sales increase will be driven by strong iPhone and Macbook demand and continuing work-from-home and remote-learning trends.-- Charles Shum and Simon Chan, analystsClick here for the researchIn recent months, Foxconn has entered into partnerships with an array of carmakers including Zhejiang Geely Holding Group Co., Byton Ltd. and Fisker Inc. to boost its automotive capabilities. Two light vehicles based on the Foxconn platform will be unveiled in the fourth quarter, while an electric bus may be launched around the same time, Liu said in February.Its MIH Alliance for vehicles counted more than 1,300 partners as of March 29, the company said Tuesday. Over the next two months, it may announce new tie-ups for batteries, while seeking new partners for areas like electronic controls and integrated circuits, Liu said.Read more: IPhone Maker Foxconn to Help Launch Electric Cars This YearAnnual shipments of Hon Hai’s EVs may reach 1.1 million units, or around 10% of global share, by 2025, Morgan Stanley estimated this month. Its auto businesses could generate $35 billion in revenue by that year, according to analysts including Sharon Shih, who lifted their price target for the stock by 29% to NT$168. Shares of Hon Hai have gained more than 80% in the past year, reaching a 40-month high last week.(Updates with share slide in the second paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.