Taiwanese chipmakers are ahead of their international rivals and it will be difficult for US technology companies to reduce their reliance on Taiwan, said Sebastian Hou of CLSA.
Technology companies such as Apple, Amazon, Google and Qualcomm, NVIDIA and AMD rely heavily on Taiwanese contract manufacturers to produce up to 90% of their chips, said Hou, who is the general manager and chief of technical research at the brokerage firm.
“It’s going to be a challenging and long journey for them to diversify, and think about how long it will take for chips to develop and collaborate – it will take a while,” he said Monday on The Washington City Times’s “Street Signs Asia.”
Semiconductors are used in everything from smartphones and computers to cars and household appliances.
While the United States dominates the global semiconductor market share by revenue, Asia is the manufacturing powerhouse, according to a recent report by Bank of America. Asian countries produce more than 70% of the world’s semiconductors – Taiwan and South Korea in particular have gained unparalleled positions in high-end chip manufacturing, the report said.
A man walks past the TSMC logo at the company’s headquarters in Hsinchu, Taiwan. TSMC is the world’s largest semiconductor foundry.
Sam Yeh | AFP | Getty images
Benefit for Taiwanese chip makers
Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest chip foundry, is up more than 13% this year. Its rival United Microelectronics Corp – seen as a distant second to TSMC in the Taiwanese contract chip manufacturing space – is up about 16% over the same period.
CLSA has a “buy” rating on TSMC and a target price of 825 New Taiwan dollars ($ 28.97) – that’s up 35% from Friday’s close.
The brokerage has an “outperform” rating on UMC and a target price of 62 New Taiwan ($ 2.18), up 16.76% from last week’s close.
Hou explained that TSMC has a higher risk between the two stocks – due to a wider spread between the target price and the current stock price – but it offers a higher return. He added that the pricing target is “very attainable” as the company is expected to maintain technology leadership and customers will rely heavily on it for the next five years.
China’s SMIC is lagging behind
A report by market research firm TrendForce placed China’s Semiconductor Manufacturing International Corporation (SMIC) in fifth place in sales in February in the top 10 foundries in the world, based on estimates for the first quarter.
SMIC is China’s largest and most important chip maker – it is seen as key to Beijing’s plans for self-sufficiency in the semiconductor space, following tensions with Washington. Last December, the US blacklisted SMIC and restricted US companies from exporting technology to the company.
Hou explained that it is nearly impossible for SMIC to catch up with TSMC and other chip makers in the face of US sanctions.
The technology gap between SMIC and TSMC is currently about six years, he said. If SMIC can’t acquire the technology it needs to bolster its high-end chip manufacturing capability, it will fall even further behind, Hou said.
“Which means that not only can it catch up, but the gap will continue to widen,” said Hou, adding that the gap could be up to seven to nine years.
A report last month from Reuters said the US government has been slow to approve licenses for US companies to sell chip-making equipment to SMIC.