The chip shortage is neither an annoyance nor a sideshow. Investors across asset classes and sectors need to realise that a 21st century economy cannot operate without semiconductors. On the supply side, we believe the current imbalance will create even more tailwinds for the semiconductor capital equipment makers that enable chip production.  Should markets become more localised, the number of buyers for this complex machinery will likely grow.


While we are mindful of near-term perturbations surrounding supply and demand, we believe the hunger for analogue chips will continue to grow as digitisation results in ever higher levels of semiconductor content across a broad range of applications.  Finally, we believe secular demand for the processors, accelerators, and networking chips that power AI and cloud computing services will continue to strengthen in the years to come as the world moves toward a digital economy.


Management decisions must also be revisited as the practice of just-in-time inventory on the part of chip buyers exacerbated the current shortage. Consequently, companies especially dependent upon chips in their end products or production processes may need to consider transitioning to a “just-in-case” inventory method. To counter the risk of over ordering chips by a magnitude of four or five with the hope of cancelling shipments should demand not materialise, chip producers are increasingly requiring orders to be non-cancellable.


The semiconductor shortage has proven to be a high-profile pain point for the global economy, and it shows little sign of abating. While the nuances of the industry structure and semiconductor cycle are typically the domain of tech investors, the global economy’s increasing dependence upon the complex functionality of cloud- and AI-enabling chips as well as process-oriented analogue chips, means that further industry developments should command the attention of all financial market participants.




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