TXN - Essential Japanese Semi Companies For The Reshoring Age

2024-02-14 15:10:03 ET

Summary

• The global COVID-19 pandemic has led to a shift towards reshoring in the semiconductor industry as supply chains are disrupted and geopolitical tensions rise.
• Reshoring efforts are leading to increased capex spending by semiconductor companies, benefiting equipment suppliers.
• Japan is heavily investing in semiconductor manufacturing, with companies like Tokyo Electron, Disco Corporation, and Advantest set to benefit from the reshoring trend.

Introduction

The global COVID-19 pandemic began a new age of isolationism as supply chains were disrupted, and unstable economies increased geopolitical distrust. As so, the leading scientific endeavor of semiconductor manufacturing naturally was one of the first industries to begin shifting away from free-market processes and into reshoring. The main catalyst is the CHIPS Act in the US, with a $50 billion pledge for self-sufficient chip production. They are not alone, as other nations like Japan have also announced billions to build manufacturing hubs at home. All of this is merely to combat the fact that the majority of semiconductor chips are manufactured in Taiwan, although politically, a claimed land of China. As China vs. West tensions continue, including the risk of an invasion of Taiwan, reshoring will continue.

For investors, there are many catalysts at play - outside the WWIII black swan event. First, reshoring, or rebuilding manufacturing internally, is leading to billions in capex spending by the semi industry. This leads to equipment suppliers gaining tremendous sales growth as the newest technologies are purchased for the new plants. At the same time, those spending heavily on capex outside the traditional foundry hubs of Taiwan, and similarly South Korea, will see weakening financials, especially as the market is in a bear cycle. Another risk is that reshoring is inherently more expensive, so margins will be lower on sales from US or other high-cost national facilities. But, to prevent or mitigate that black swan event I brought up, there are still national security benefits to reshoring, even at a small financial loss....

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