Incredible Time In The Semiconductor Industry
It’s such an incredible time right now in the semiconductor industry.
As we’ve discussed before, there are significant supply constraints in the industry that are affecting many sectors of the semiconductor market.
The reality is that the underlying economy has been strong, and the demand for many semiconductor products is much stronger than the supply.
This results in strong economics for semiconductor companies. Prices and gross margins tend to increase. This results in stronger free cash flows.
And some of these cash flows are reinvested in capital expenditures to both increase capacity and also invest in the next generation of semiconductors.
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Taiwan Semiconductor Manufacturing (TSM) just recently announced that it is pulling in its 4 nanometer (nm) manufacturing into 2021 ahead of schedule. It was the first to begin manufacturing its leading-edge 5 nm manufacturing last year, and it has been in full swing this year.
And not only is it pulling in its 4 nm production, it is also charging ahead full speed on its bleeding-edge, 3 nm manufacturing process. It will enter risk production late this year and mass production in 2022.
Semiconductor technology may seem esoteric. But each new generation brings chips that are smaller, more powerful, and more power-efficient.
These new semiconductors are particularly good at running technology like artificial intelligence (AI) and improving our communications technology. In other words, they have a direct impact on our lives.
And despite the pandemic, the global semiconductor materials market grew 4.9% to a record high of $55.3 billion. This was above the past high in 2018.
Furthermore, the February numbers for global semiconductor sales rose 14.7% year-over-year to $39.6 billion for the month. This is an impressive jump considering last February was a “normal” month in a very strong economy, just before the economic lockdowns ensued.
I keep a close eye on delivery lead times of semiconductors to get a feel for the pricing power of semiconductor companies, as well as the overall economic strength in the market. When lead times start to collapse, it can lead to a glut of semiconductors. And that’s always a bad sign for the industry and the economy.
But we’re seeing the opposite of that right now. Some lead times for networking semiconductors are now at 50 weeks – almost an entire year.
This is being driven by semiconductor foundries like TSMC, Global Foundries, SMIC, Samsung, and others being completely full. And the shortages have extended well beyond the automotive sector, laptops, and game consoles.
Semiconductors used for information technology (IT) networking (for use in switches and routers) are critical to expanding the overall capacity for increased data traffic over the internet. They are the “brains” and the workhorses that keep all of our bits and bytes moving quickly to the right destination. They allow us to connect with one another no matter where we are in the world.
These shortages are further exacerbated because we are experiencing a confluence of exciting events in the world of technology.
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Jeff Brown’s Last Digital Leap Investment Summit Details
We’re leaping from 4G to 5G wireless technology, which requires brand-new smartphones. We’re leaping from the fifth version of Wi-Fi technology to the newly released Wi-Fi 6. We’re leaping from internal combustion engines to electric vehicles and self-driving cars.
And we’re leaping from analog processes in biotechnology to computational biology and drug discovery driven by artificial intelligence and machine learning.
The incredible thing is that these leaps are all happening right now… and they all require the next generation of bleeding-edge semiconductors to bring them to life.
That’s why, Jeff Brown wants all his readers to be prepared for the next big digital leap. And he’s hoping you’ll join him on Wednesday, April 7, at 8 p.m. ET for Jeff Brown’s Last Digital Leap investment summit.
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