|Bid||0.0000 x 0|
|Ask||0.0000 x 0|
|Day's Range||2.5400 - 2.6000|
|52 Week Range||2.1900 - 3.5850|
|Beta (5Y Monthly)||0.98|
|PE Ratio (TTM)||36.86|
|Forward Dividend & Yield||N/A (N/A)|
|1y Target Est||N/A|
(Bloomberg) -- On a scorching hot day in late August, representatives of Taiwan’s government and industry crowded into the clinical cool of a state-of-the-art semiconductor facility for a symbolic moment in the global tech conflict.They were attending the opening ceremony for a training center built by Dutch company ASML Holding at a cost of about $16 million, small change for an industry used to spending $10 billion or more on a single advanced manufacturing plant.The real value of the site in the southern city of Tainan is strategic: It’s one of just two such facilities outside the Netherlands capable of training semiconductor engineers to fabricate cutting-edge chips on ASML machines. Fellow U.S. ally South Korea hosts the other — and Washington is working hard to ensure China never acquires the same technology. As the U.S.-China confrontation takes root, the ability to craft chips for everything from artificial intelligence and data centers to autonomous cars and smartphones has become an issue of national security, injecting government into business decisions over where to manufacture chips and to whom to sell them. Those tensions could kick into overdrive as Communist Party leaders set a five-year plan that includes developing China’s domestic technology industry, notably its chip capabilities.Semiconductors made from silicon wafers mounted with billions of microscopic transistors are the basic component of modern digital life and the building blocks of innovation for the future. They are arguably one of the world’s most important industries, with sales of $412 billion last year; scale that up to the electronics industry that depends on chips, and it’s worth some $5.2 trillion globally, according to German manufacturers.Politics is roiling that business model, sparking a drive for more autonomy from the U.S. to China, Europe and Japan. “We’re in a new world where governments are more concerned about the security of their digital infrastructure and the resiliency of their supply chains,” said Jimmy Goodrich, vice president of global policy with the Washington-based Semiconductor Industry Association. “The techno-nationalist trends gaining traction in multiple capitals around the world are a challenge to the semiconductor industry.”At once highly globalized and yet concentrated in the hands of a few countries, the industry has choke points that the U.S. under the presidency of Donald Trump has sought to exploit in order to thwart China’s plans to become a world leader in chip production.Washington says Beijing can only achieve that goal through state subvention at the expense of U.S. industry, while furthering Communist Party access to high-tech tools for surveillance and repression. China rejects the allegations, accusing the U.S. of hypocrisy and acting out of political motivation.For both sides, Taiwan, which is responsible for some 70% of chips manufactured to order, is the new front line.Beijing is increasingly hostile toward Taiwan, a democratically governed island it regards as its territory. Taiwan Semiconductor Manufacturing Co.’s status as the world’s largest contract chipmaker — a trend taking over the industry — the go-to supplier for Apple Inc. and the focus of next-generation chip-making, adds another dimension to China’s enmity, and to its standoff with the U.S.TSMC has become “turf that all geopolitical players want to secure,” founder Morris Chang said in November.Just a couple of kilometers from the new training center, cranes dot a massive construction site where TSMC is building “fabs” in which it will manufacture the most advanced chips in the world — chips that are no longer available to China’s Huawei Technologies due to U.S. export controls. Huawei used to be TSMC’s second-largest customer, accounting for 14% of sales; those shipments stopped in September.The White House has also imposed export restrictions on China’s largest chipmaker, Semiconductor Manufacturing International Corp., having already squashed Fujian Jinhua Integrated Circuit Co., once among Beijing’s biggest hopes to climb the chip ladder. The U.S. is also reaching out to key players at home and abroad to ask them to reconsider their relations with China. China’s intentions are so alarming to America because chips can be dual-use items with military applications, according to a former official familiar with the U.S. administration’s efforts. “They are the fundamental basis of our qualitative military advantage, from missiles to radars to submarines,” the official said.After decades when the industry was encouraged to go global, Trump is attempting to reel it back home. The CHIPS for America Act introduced to Congress in June aims to set up incentives to support semiconductor manufacturing and research in the U.S.One executive at a Chinese semiconductor company, asking not to be named due to commercial and political sensitivities, said three of its deals had been aborted because of concerns raised by the Committee on Foreign Investment in the U.S., or CFIUS, which reviews the national security implications of transactions. Germany has also been effectively cut off, making any deals very difficult, the person said.China “firmly opposes the unjustified suppression” of its companies by the U.S. “under the weakest pretext of national security,” and will continue to defend them, Foreign Ministry spokesman Wang Wenbin told reporters in late September.China — the world’s biggest semiconductor market, accounting for more than 50% of all chips sold — isn’t standing by as its high-tech ambitions are kneecapped. That outsized demand means many major deals need Beijing’s sign-off: Qualcomm gave up its pursuit of NXP Semiconductors in 2018 after failing to win approval from China.China’s five-year plan for the chip industry will lend it the same strategic importance Beijing gave to its atomic bomb program. What's more, a law passed Oct. 17 may allow China to hit back at the U.S., with speculation that it could prompt export controls on rare earths used in chip production.Still, the rolling restrictions imposed by Trump haven’t just hit China’s chip capabilities but are upending the entire industry. And there’s scant sign of a climbdown, whoever wins the U.S. election in November. Citing the need to promote “digital sovereignty,” the European Commission is exploring a 30 billion-euro ($35 billion) drive to raise Europe’s share of the world chip market to 20%, from less than 10% now. Japan is also looking to bolster its domestic capacity. At least one Japanese delegation traveled to Taiwan in May and June this year in the hope of convincing TSMC to invest in Japan, a person with knowledge of the visit said. But TSMC announced in May that it was building a $12 billion facility in Arizona, and the company declined to receive any foreign visitors seeking to woo it, said another person familiar with the company’s thinking. Both asked not to be named discussing corporate strategy.Meanwhile South Korea, home to Samsung, the No. 1 memory chipmaker, is striving for more self-reliance after Japan imposed export curbs last year on chemicals used in semiconductor manufacture during a flare-up in the countries’ tensions over Japan’s wartime past.While the U.S. remains dominant with giants like Intel Corp and Qualcomm and a virtual monopoly on the software essential to chip design, “there’s no region in the world that can proclaim strategic autonomy in semiconductors,” said Jan-Peter Kleinhans, director of the Technology and Geopolitics project at Berlin-based think tank Stiftung Neue Verantwortung. “Take out any of these players and the value chain falls down.”In January, days before Trump signed an initial trade deal with China, Secretary of State Michael Pompeo sat down for dinner with around 30 CEOs in Silicon Valley. He was the guest of Keith Krach, a 30-year veteran of the tech scene who was appointed undersecretary for economic growth in June 2019.Pompeo had a message for them: China’s Communist Party “is a threat to your companies because they don’t want to compete, they want to put you out of business,” Krach recalled him saying, he told a virtual conference of the German Marshall Fund of the United States on Sept. 29.Trump may have weaponized the semiconductor value chain, but it was the Obama administration that first acted on the threat posed by China, unveiling a semiconductor strategy in January 2017 as one of its last acts. Trump picked up the baton, but the nature of the supply chain means that others are in the U.S. line of sight.Israel — a high-tech R&D hub where Intel is the largest private employer — exported semiconductors worth about $2.1 billion last year, with about half going to China, data compiled by UN Comtrade shows.That closeness to China risks becoming a liability. Zvika Orron, a partner at Israel’s Viola Ventures who leads semiconductor investing, said there’s a hesitancy on the Israeli side to look to China because of worry that Chinese funding could imperil future U.S. deals. Carice Witte, founder of the SIGNAL nonprofit focused on Israel-China ties, said the U.S. is bound to “start asking more questions.”The U.K. is another pinch point thanks to Arm Ltd., whose instruction set — the basic code that allows chips to communicate with software — underlies everything from smartphones to the world’s fastest supercomputer. Arm currently sells to China, but the company’s takeover by Nvidia Corp puts that business in doubt. If the $40 billion deal wins regulatory approval, Arm would fall under American jurisdiction and become even more subject to U.S. export controls. While the U.K. government has yet to show its hand, it allowed the sale of Arm to Softbank of Japan in 2016, so wouldn’t normally be expected to intervene now. But the newly strategic nature of the industry has prompted lawmakers to call for a review of the deal’s implications. Here too there are concerns at being caught between the U.S. and China.Losing a world-class technology company to the U.S. for the Department of Justice to “weaponize” is not a good place to be, according to a person with knowledge of British national security considerations. The risk, they said, is a U.K. strategic asset becomes “recognized as part of the U.S. arsenal” in its campaign against China.Over the Taiwan Strait on mainland China, the mood at the 2020 World Semiconductor Conference in Nanjing in late August was gloomy. Chinese executives worried what the Trump administration might do next to hobble Beijing’s progress.“The conflict remains very fluid, which makes it impossible to predict what next moves both sides are going to take,” said Huang Yan, application and sales director at Senodia Technology, a Shanghai-based chip design company that develops sensor chips for smartphones.China is on course to import $300 billion of semiconductors for the third straight year, underscoring its dependence on U.S. technology. That’s something President Xi Jinping is determined to end.Xi has pledged an estimated $1.4 trillion through 2025 for technologies from artificial intelligence to wireless networks. A focus of Beijing is to accelerate research into so-called third-generation semiconductors — circuits made of materials such as silicon carbide and gallium nitride, a fledgling technology where no country dominates.Yet without silicon capabilities it will be difficult for China to build a proper semiconductor industry, said a senior TSMC official. Another person from a company involved in third-generation chip production said designing them is an art, and even poaching a team of designers won’t necessarily guarantee success.The consensus is it won’t be easy for China to catch up, especially at the cutting-edge where TSMC and Samsung are producing chips whose circuits are measured in single-digit nanometers, or billionths of a meter. SMIC would have to double annual research spending in the next two-to-three years just to prevent its technology gap with those companies widening, says Bloomberg Intelligence analyst Charles Shum.The tussle raises the prospect of a broader decoupling of the global industry with two distinct supply chains. As with 5G, the question then becomes one of the extent of each system: Does China’s high-tech gravity pull in Southeast Asia and parts of Europe, or is it confined to its immediate neighborhood? How many allies will side with the U.S.?To be sure, the chip industry is still thriving, with the benchmark Philadelphia Semiconductor Index up about 30% this year. Geopolitics is now a feature of boardrooms, said the SIA’s Goodrich, but 5G and AI are likely to cause more market upheaval.The direction of travel still worries key players. Shares of Micron Technology Inc., the largest U.S. chipmaker, fell in September after it was forced to halt shipments to Huawei, its biggest customer.Complete decoupling would harm U.S. competitiveness and hurt China, raising the prospect of less money for R&D, slowing innovation, said Goodrich. “A world in which the U.S. and China are independent from one another is a negative outcome for everyone.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- China passed a new law to restrict sensitive exports to protect national security, helping Beijing gain reciprocity against U.S. as tech tensions mount.The country’s top legislative body, the National People’s Congress Standing Committee, adopted the measure on Saturday that applies to all companies in China, including foreign-invested ones. The law will be effective Dec. 1.Souring ties between China and the U.S. had led Washington to take action against several Chinese companies including Huawei Technologies Co., ByteDance Ltd.’s TikTok app, Tencent Holdings Ltd.’s WeChat and Semiconductor Manufacturing International Corp. The new law provides a framework for Beijing to better fight back.While its existing control list is much narrower than the one used by the U.S., the country’s commerce ministry made an amendment in August that included technology such as algorithms and drones. The list could be further expanded to include even more products and technologies.The law stipulates export controls over items of both civilian and military use, military and nuclear products, as well as “goods, technologies and services” that are related to national security, including data related to them. Relevant government departments have been tasked to publish lists of controlled items.Under the law, China can take reciprocal measures if any country or regions abuse their export controls in ways that hurt its national security and interest.Violation of the new export control law will lead to fines of as much as five million yuan ($746,500) and revocation of export licenses. Breaches that jeopardize national security and interests will also face criminal charges, with organizations and individuals outside of China also punishable under the law.Whether Beijing will allow the export of valuable Chinese technology is one of the biggest uncertainties hovering over the partial sale of TikTok to Oracle Corp. and American investors. China in August asserted the right to block the deal by adding speech recognition and recommendation technology -- the core of TikTok’s global popularity -- to a list of regulated exports.(Updates with details of the new law from fifth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Apple (NASDAQ:AAPL) had its minor moment in the media earlier this week as it presented more of its iPhones. The phones are finally catching up with bigger competitors such as Samsung Electronics (SSNLF,005930 Korea), Xiaomi (OTCMKTS:XIACY) and ZTE (OTCMKTS:ZTCOY) by containing transmission chips and software to operate on fifth-generation (5G) wireless standards. 5G is not really in the U.S. yet, but is increasingly in China and South Korea. But the company is at least trying to be relevant. Behind the glass and painted cases of modern phones are a host of semiconductors that the company had little to do with in creating or producing. Like for most of Apple products, they do the marketing — others do the work. But it is a good news peg to discuss the semiconductor chips that are so vital for the world’s electronic gadgets, as well as everything else from our cars to planes and even the refrigerator in your kitchen.InvestorPlace - Stock Market News, Stock Advice & Trading Tips Everyone tends to focus on the big brand names in technology, not the companies that do the grunt work to make the guts of modern products. Hence companies like Apple get lots of headlines and companies that I am presenting to you include some that aren’t household names. They should be, though, if you are investing in more of the new-new things coming to the market. Founders Semiconductors, or chips, are firmly in the vernacular of technology investors. But I would argue that not many understand the process of getting from silicon to the finished product that makes a gadget work when you hit the power button. Foundries are extremely capital-intensive facilities that come with all sorts of massive barriers to entry. They need lots of space and can be highly environmentally disruptive, both in construction as well as in operation. And permits from governments, from national to local entities, can be very, very difficult to get. I remember many years ago in Shanghai, I was invited to an initial presentation by a coop led by Siemens (OTCMKTS:SIEGY) about a new fabrication plant that was getting built in south-central China. The project was supposed to get done in under a year — which seemed impossible anywhere beyond China. They took a small mountain and leveled it, making a clear building site with access to transportation of raw materials and finished chips. And then they built and finished it all ahead of schedule and the plant is still humming along today. This, of course, would never happen in the U.S. But that’s yet another great thing about China when it comes to business. 7 Dividend Stocks To Buy For Adventurous Investors And China remains the go-to nation for foundries, along with some regional locations. And despite all of the bluster over competition – China and its regional partners are the go-to places for getting chips made from start to finish. Here are some of the companies that I would have you take a look at if you are interested in investing in what’s behind the brands of electronics that make it all happen. Samsung Electronics Taiwan Semiconductor (NYSE:TSM) Semiconductor Manufacturing International Corporation (OTCMKTS:SMICY) United Microelectronics Corporation (NYSE:UMC) Samsung Electronics Samsung Electronics is a Korea-based behemoth that has a great relationship with China and the region when it comes to manufacturing just about everything electronic. It is one of the globe’s leaders in foundries for chips. That in turn feeds its own needs for its own high-value-added products as well as supplying others. This company should be in any portfolio that wants to be exposed to the best of technology, including foundries. Source: Samsung Electronics Revenue – Source: Bloomberg Revenue for the company continues to expand year after year with the past decade showing gains averaging 7.51% on a compound annual growth rate basis (CAGR). Of course, foundries are just one business — along with batteries (including processing all sorts of very nasty chemicals to make them happen) as well as countless finished industrial and consumer products. But with nearly everything from soup to nuts in its operations, its operating margin is very impressive at 12.1%, demonstrating its cost controls and excellent management. This, in turn, drives an impressive return on shareholder’s equity of 7.5%. Dividends are getting better, running at a yield of 2.4%. And with lots and lots of cash and pretty much no real debt, the company is the best to start with in the chip business. Source: Samsung Electronics Total Return – Source: Bloomberg The shares in U.S. dollars have been a consistent performer with the past decade alone generating a return of 354.81% for an average annual equivalent return of 16.34%. One thing to note — you may have to call your broker for execution, and this may or may not incur a fee. Taiwan Semiconductor (TSM) Taiwan Semiconductor (TSM, 2330 Taipei) is a Chinese behemoth in the chips business headquartered in Hsinchu on the island of Formosa. Like for Samsung, Taiwan Semi provides a litany of chips and related products that generally are done under contract with a who’s-who in the electronics markets. It has massive foundries throughout China and its territories and works well with governments in its plant and foundry developments. And it in turn generally controls one of the largest percentages of chips made in any given year for customers around the globe. Revenue from its more focused product line on chips and components continues to rise. Over the past decades, the company has achieved revenue gains running at 12.56% on a CAGR basis. Source: Taiwan Semiconductor Revenue – Source: Bloomberg Its margin is much better than for the much more diverse Samsung, and is running currently at 34.8%. 9 Stocks to Buy for a Wild Ride in October And in turn, this drives a return on shareholder equity at a whopping 29.1%. Source: Taiwan Semiconductor Total Return – Source: Bloomberg The shares have returned 989.02% over the trailing decade for an annual equivalent return of 26.95% including a dividend yield of 2.2%. And with lots of cash and little debt, the company is set to continue to expand as needed. Semiconductor Manufacturing International Corporation (SMICY) Semiconductor Manufacturing International Corporation (SMICY, 981 Hong Kong) is also known as SMIC. It, too, has some of the leading foundries in China and does a great job of running them from its headquarters in Shanghai. Like for Taiwan Semi, SMIC does a lot of contract work — which makes for a broad play on chips and the overall demand for electronic goods. Source: SMIC Revenue – Source: Bloomberg Revenue has a long-term history of steady growth, with the average running at 10.43% on a CAGR basis. The company has a bit less cash on hand and a bit more debt — which can be more common for larger-scale Chinese companies. But at only 24.00% of assets, it is not an issue — nor should it limit growth, as it is well-supported by the government. Source: SMIC Total Return – Source: Bloomberg The stock has been plodding along for many years until the last two — but since then, it has returned 190.14%, for a quick average annual equivalent of 70.21%. It is also a cheaper stock like Samsung as its stock is valued at a low 2.07 times its intrinsic value (book). No dividend yield, but it does make for a value buy in the foundry space. United Microelectronics (UMC) United Microelectronics Corporation (UMC, 2303 Taipei) is more commonly known as UMC. And the company makes a variety of semiconductor chips and integrated circuit chips for a litany of companies, from consumer to industrials. It has major Chinese foundries and assembly facilities, and since its founding back in 1980, it has continued to earn contracts year in and year out from customers around the world. Source: UMC Revenue – Source: Bloomberg Revenue has been gaining at a bit more of a steady, if not subdued level compared to its foundry peers. Gains average only at 2.71% on a CAGR basis. And margins are tighter than for its cross-town rival Taiwan Semi at a more subdued level of 3.2%. But with more cash and controlled debt, the company is still a go-to maker with ample government support. Source: UMC Total Return – Source: Bloomberg Shares have had a history of muted return until the past two years – but still have garnered some 250.39% for shareholders over the past five years. 7 Big Tech Stocks to Buy for Blockchain and Crypto Exposure And with a dividend yielding 2.50% and shares even cheaper at 1.83 times intrinsic value – closer to the absolute bargain of Samsung it does make for a value in the foundry market. On the date of publication, Neil George did not hold (either directly or indirectly) any positions in the securities mentioned in this article. As the editor of Profitable Investing, Neil George helps long-term investors achieve their growth & income goals with less risk. With 30+ years of experience in the financial markets, Neil recommends undiscovered and underappreciated companies that offer subscribers double-digit yields now and triple-digit returns over time. More From InvestorPlace Forget The Election… Pick These Stocks for the Win in 2021 Why Everyone Is Investing in 5G All WRONG America’s #1 Stock Picker Reveals His Next 1,000% Winner Revolutionary Tech Behind 5G Rollout Is Being Pioneered By This 1 Company The post 4 Semiconductor Stocks Making the Guts of Everything Electronic appeared first on InvestorPlace.