Global chip shortage to crash tech stocks?

The tech heavy NASDAQ is up nearly 58% in the last twelve months, leading the way against other stock markets – all of which are enjoying bull market conditions with 20-30% annual gains. But is the top coming from an unlikely source?

Apple posted its latest quarterly earnings overnight that had two big surpsies – namely a huge uptick in expected earnings, but more importantly a stark warning that the global computer chip shortage is really starting to bit.

Details on AAPL here from Yahoo:

Apple (AAPL) came out with quarterly earnings of $1.40 per share, beating the Zacks Consensus Estimate of $1 per share. This compares to earnings of $0.64 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of 40%. A quarter ago, it was expected that this maker of iPhones, iPads and other products would post earnings of $1.41 per share when it actually produced earnings of $1.68, delivering a surprise of 19.15%.

After a blockbuster second quarter, Apple Chief Financial Officer Luca Maestri warned supply constraints are crimping sales of iPads and Macs, two products that performed especially well during lockdowns. Maestri said this will knock $3 billion to $4 billion off revenue during the fiscal third quarter.

Over the last four quarters, the company has surpassed consensus EPS estimates four times.

So while Apple sit on a mountain of cash, it can’t magically produce new semiconductors out of the air as the shortage crisis is now moving towards the major car manufacturers as Honda, BMW and Ford all announced overnight a cut in production of their major plants.

From Bloomberg:

In a dizzying 12-hour stretch, Honda Motor Co. said it will halt production at three plants in Japan; BMW AG cut shifts at factories in Germany and England; and Ford Motor Co. reduced its full-year earnings forecast due to the scarcity of chips it sees extending into next year. Caterpillar Inc. later flagged it may be unable to meet demand for machinery used by the construction and mining industries.

At Ford, the shortage will likely reduce production by 1.1 million vehicles this year, CFO John Lawler said on a call with reporters. The carmaker expects a $2.5 billion hit to earnings due to scarce chip supplies.

Tesla Inc. CEO Elon Musk earlier this week called the chip shortage a “huge problem.” NXP Semiconductors NV said it’s expecting supply to be tight all year and warned constraints for the auto industry could extend into 2022.

In just the past week, Jaguar Land Rover Automotive Plc, Volvo Group and Mitsubishi Motors Corp. have joined the list of manufacturers idling factories.

Samsung, which is both a producer and user of chips, said Thursday that component shortages will contribute to a slide in revenue and profit this quarter at its mobile division, which produces its marquee Galaxy smartphones.

Time to buy semiconductor stocks and rotate out of cars? Or is it too late as supply is unable to keep up with demand for not just the automakers, but the bigger consumer electronics industry.

Watch South Korean stocks closely in particular for signs of a rollover ahead, as they have almost always proven a harbinger of trouble in the global supply chain:

Korea composite stock price index

No chips for you!

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Comments

  1. It’s a bit misleading equating a shortage in Consume electronic Chips with a shortage in Automotive Chips, they’re two very different markets. Totally different supply companies, different production facilities and very different design requirements, about the only real overlap is with the Info/entertainment systems in cars.
    The Automotive chip market tends to be driven by long term contracts so a more likely case is that car makers ramped back demands at the start of Covid and are now ramping production faster than the chip makers can come back on line. From what I’ve heard the Covid19 downturn in Automobile demand was the signal for many struggling automotive chip makers to exit their less profitable products lines and shutdown older production facilities much sooner than was forecast / expected. Under normal circumstances the chip makers would have worked with Car makers to fulfill their production requirements with “life time buy” production runs before shutting down facilities, however nobody planned on Covid happening so none of these normal end of product life transitions happened.

    • ErmingtonPlumbingMEMBER

      “the only real overlap is with the Info/entertainment systems in cars”

      Are any vehicles sold without these info/entertainment systems?

      • Why would a car maker do this?
        Info and Entertainment integration are the big selling feature, it’s what your old car can’t do.
        From my experience there has been very little real advancement in Motor/Transmission/Suspension systems in the last 10 to 15 years so, from a sales perspective, what makes today’s car different from those of yesteryear is Infotainment and integration with consumer electronics and Telecommunications

        • You’re right about the mechanicals, mainly just trimming around the edges for final improvements. Electronics have improved many aspects out of sight. But….. talk to any wrecker about why cars are coming in now & it’s highly correlated with electronica. They’ll say most cars aren’t worth a jot after 6 years. OBD doesn’t tell the whole story & if it’s a loose wire under the dash they usually see them turn up as it’s just too hard/costly for an autoelectrician to stand on his head looking for a string of loose joints under there, & good luck if you live near the sea. The latest BMW has 80 mini computers running it & woe betide anyone who thinks they can just plug in a new blinker bulb without telling the computer it’s code number – I’m told the car won’t run. I’ve been seeing quite a few mechanics in their 50’s walking away as it all becomes too complex. Nice as tech & CR can really be, this is why a lot of handy independent types are going for pre common rail Diesels.

          • wrt BMW I’m not sure about blinker lamps but new head lights definitely need to be coded to the car and this encrypted code is something that only a BMW dealer can provide.
            BMW justifies this with a claim that they’re doing this to “protect the integrity of the supply chain” the parts / service monopoly is just an unfortunate side effect
            wrt common rail diesels, yeah love my Cruiser with a 1HDFTE it might not be the most environmentally friendly beast but as far as reliability is concerned you just can’t beat it.

    • GonzificusMEMBER

      The carmakers cancelled their orders with the chip makers due to covid, expecting a huge downturn. The capacity was snapped up by other industries. I believe there are only 2 chip makers globally. The car makers couldn’t just order some more, they were now at the back of a very long line.
      With everyone home for covid, PC upgrades were enormous, all spare capacity was absorbed by GPU & CPU parts, no capacity left for the car industry.

      • yup read an article that said the same. In addition the profit margin chip makers get for automotive chips is less than many other industries so they haven’t been prioritized. Plus a new car needs about 300 chips so if you’re missing one, it doesn’t get assembled.

      • This post makes out like South Korea is the worlds largest chip maker, and all the chips come there, and they are all the same thing.

        China supplies 68% of the worlds semiconductors – just as a basic FYI.

        Chips are not chips.

        China is struggling with sub 5nm chips, although it has now made their own native version and is switching to a carbon based system and engaging in technical “leap frogging” from silicone (think Africa leap frogging copper internet directly to mobile).

      • drsmithyMEMBER

        The crypto craze has been driving GPU costs through the roof for a while, much to the frustration of people who want to do something useful with them like play games, without having to pay as much as an entire PC.

    • Chips are chips, from a manufacturing perspective. Design is not what is causing these problems. Manufacturing capacity is not available to meet demand, pure and simple.

      • Really!
        So let me understand this, in your opinion a 0.25micro 60V /110C process used for Engine management can be easily retargeted to produce 10nm 1.2V CPU /GPU’s.
        As for retargetting production capacity it can take up to a year to just complete all the testing and certification requirements that Auto makers demand, so no chip maker is even going to try do this.
        Automotive semiconductors is a weird market where you devote expensive and scarce engineering resources to design test and certify products that don’t even begin to ramp to production for over 3 years.

    • Its all the peripherals – not engine management – from info systems, navigation, audio, diagnostics, power steering, breaking etc – the HUGE demand in domestic home systems (Xbox etc) drained supply as workers shut down as well.

      China also did a MASSIVE storage of high end chips as the trade bans came in.

      • I actually called someone that’s definitely informed and he put the problems more down to changes in the mix of cars actually being produced over those that were projected to be produced for 2021.
        From the chip producers point of view they saw demand for ICE chips collapse in 2020 that wasn’t expected to collapse till 2023-6 so they took the necessary steps and closed fabs early.
        Part of the problem was the failure of Hydrogen / Fuel Cell technology to carve out its expected slice so all of this capacity is either falling back onto traditional ICE technology (which was to have been phased out) If you add to this the rise in Electric car demand along with other uses for Li-Ion battery technology than the material shortages in the Electric market have also resulted in demand falling back to more traditional ICE
        But as you say a modern car has hundreds of chips to control everything from the mirrors to seat position and we even have chips that are only present to prevent unauthorized modifications of cars, Any one of these chips is missing and the car can’t be sold, or in many cases can’t even leave the factory.

  2. reusachtigeMEMBER

    Does anyone know where you can still get proper old style chips done in a lard deep fryer like you can still get in the UK and Ireland chippers? All our chips here nowadays are those stiff bland things with no flex and no crispy edges nor small crispy pieces. I would even cross ANZAC parade if necessary (and I guess that means wog hotspots in the inner west but so be it).

    • ErmingtonPlumbingMEMBER

      Fish and Chips cooked in Beef tallow are of course the best, but apparently Animal fats are more flammable than vegetable oils and thus the far superior animal fats are not commonly used.
      My Mates Greek father used to own a number of BBQ chicken shops in the 70s and 80s (whos Greek father didn’t) and he would use the Chicken drippings for making very yummy hot Chips.
      Hard to find that kind of delicacy today.

  3. Crash tech stocks? I’m long Goog (Alphabet) after HODLING through the crash in April last year. I’m up BIGLY. 200% increase since the lowest point. The only reason to earn a wage is to buy tech stocks so you can get wealthy. It’s worked for me in the last 10 years. Suggest others do the same.

    • Ronin8317MEMBER

      I’m uncomfortable with the stock market going through the roof during a epidemic. It is totally divorced from reality.

      Boeing at it’s lowest point in 2020 is $95 USD : now it’s $235. By all logic it should be a stock that is trashed, but we need to forget about fundamental : it is going up because it is going up.

    • Exactly the last tech stock crash only wiped out 85% of peoples net worth – what could go wrong when its almost ten times higher at price to earnings…….I mean,,,….what could possibly happen…….like…..guys…..

    • Strange EconomicsMEMBER

      However when you compare to Oz property at 10% up a year forever, on 90% leverage makes it 100% a year forever, government guaranteed and tax free.
      The stock market doesn’t compare – and it could even go down. Ask your Aussie in the street which they are buying.

      However Used car prices have gone up 20% since last year, perhaps time to buy.

    • Well a company like Google ain’t gonna crash unless Governments regulate them out of business or try and break them up.

      I agree stocks are crazy but it’s driven by ZIRP and no alternative place to park your money. If you’re close to retirement, sure sit on cash. But I’m still 20+ years away from that. So may as well go all in now. Haha.

  4. Prices for some semiconductors are already through the roof. Fabs and fab makers are where to be: Global Foundries, NXP, Renesas, Micron, Intel, Texas Instruments, Toshiba, Microchip, TSMC, Samsung, ASML, Applied Materials, etc.
    Not really sure about fabless houses though as they will probably suffer margin squeezes if they can’t pass on increased manufacturing costs and are volume-constrained.

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