Chips Are Back. But Not Equally or For Everyone


In the space of six months, the global semiconductor industry has turned from one of the hottest sectors to one of the most battered and bruised. The economic downturn, the continued Covid-19 lockdown in China, is increasing tensions across the Taiwan Strait, and tougher regulations from Washington have wiped out close to $2 billion in the value of chipmakers.

Now they are back. The extraordinary change in the past month has added 600 billion dollars to the value of these companies. The rebound was not evenly distributed, however, with some areas and product sectors doing better than others.

An analysis by Bloomberg Opinion of more than 220 global chip companies with a market value of at least 1 billion dollars found that investors have dismissed concerns about the strict rules of the US government on the transfer of technology to China. At the same time, semiconductor players in the world’s second-largest economy have become worse, despite recent moves to reduce Covid Zero and boost the domestic economy.

The Biden administration, earlier last month, announced it would freeze access to machinery, software, and support used by Chinese chipmakers to make things at 14 nanometers or better. Most of the energy is currently at 28 nanometers or more, but the new rules aim to ensure that Beijing fails to reach the US and its allies. Resource providers and service providers such as Lam Research Corp. they fell amid fears that China would soon be out of bounds.

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Chip designers such as Nvidia Corp. and Advanced Micro Devices Inc. they also suffer because of the belief that Chinese consumers will no longer be allowed to buy their key devices used to run artificial intelligence and high-performance computer systems. Equally, these moves should have boosted China’s domestic chip players as the industry benefits from government support aimed at shifting the balance away from foreign companies.

Investors now see it differently. In the past month, the average return of the global semiconductor sector has jumped 21%. This sector is still down about 30% this year with only two names among medium and large companies that want to grow (GlobalFoundries Inc. and Semiconductor Corp.).

Nvidia and AMD, along with Dutch hardware maker ASML Holding NV, led the gains. In fact, it’s the big players – those with a market value of more than $100 billion – that have been the biggest beneficiaries of this change, rising by an average of 23.5%. This could be a sign that investors are ready to pull back but would rather stick with blue-chip names: Taiwan Semiconductor Manufacturing Co. added nearly $70 billion to its market value last month. Small companies, which we define as those between $1 billion and $10 billion, are the rest.

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Note that we do not include Samsung Electronics Co. in our analysis because although it is a large chipmaker, less than a third of its revenue comes from semiconductors.

Perhaps the biggest sign that investors do not care about the strict regulations in selling to China is the fact that seven of the top 10 suppliers of equipment or related services. These companies are also among the biggest losers behind big names, including TSMC, Intel Corp. and SK Hynix Inc., have cut their spending budgets for this year citing tight supply and an improving economic outlook. But instead of canceling orders, it looks like chipmakers are likely to push back their purchases to next year in anticipation of long-term growth.

Although much smaller than Taiwanese and American chipmakers on average, the large number of companies listed in China makes the nation a major player in the world’s largest markets, even if that has not been translated into supply share.

This massive increase is largely due to Chinese leader Xi Jinping’s plan to boost the domestic sector, complete with special treatment and government spending. That should be good for business. But investors don’t look like they will gain much, unless the US works harder to cut the world’s most populous country. With the exception of South Korea, which has a heavy reliance on the memory-chip industry, Chinese semiconductor companies have lagged behind peers in the US, Japan and Taiwan.

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The sharp decline of Chipmakers during this year was a clear reminder to investors, and the industry, not to take this sector lightly. Yet as the dust settles, tensions cool, and world leaders reunite, the same reasons for falling in love with chips begin to resurface. Until the next disaster.

More from this author and others at Bloomberg Opinion:

• China’s Strict Chips Laws Are Timed Badly: Tim Culpan

• Auto industry is the most promising economy right now: Conor Sen

• Apple’s US Chip Move Is As Much Marketing as Tech: Tim Culpan

This column does not reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist who covers technology in Asia. Previously, he was a technology reporter for Bloomberg News.

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