Frying Pan Into the Fire -- Chip Shortage

Weather Man

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Still was able to land a XSX today.

Was trying for a PS5 digital but this came up and well I'll stick with Microsoft for a bit longer.

Stopped at the local ginormaous Polaris dealer today. They have almost no inventory, chip shortage affecting production.
 

thomas91169

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Think the world's days of luxury, easily replaceable items and instant gratification/same day shipment are going to come to an end. These things work only when all the cogs are moving to allow for it.

Maybe this will restart manufacturing and production back at home instead of global outsourcing.
 

Fat Boss

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Auto chip shortage worsens after blackouts and fire, sending semi suppliers higher

  • The same day, Renesas first revealed a fire in one building of a facility that produces components for automotive, industrial, and IoT components. The company said the fire damage will take its 12-inch production offline for up to a month.

Google "renesas fire" and click on images. Pretty ugly sight for what was once a pristine clean room. I learned yesterday in my staff meeting that uh, it was an LRCX tool that caught fire in the first place. <gritting teeth emoji>
 

Fat Boss

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BTW, the reason the chip shortage is hitting the automotive industry so hard is they basically halted production of cars and trucks a year ago. When that occurred, the contracts for the automotive chips pushed out and the chipmakers went on to MUCH bigger and better things. Automotive is a pretty small slice of the overall semiconductor market, so once they lost their capacity at the fabs, it's been all uphill trying to get that back. They have to compete with much larger markets like the 5G infrastructure and handset rollout.
 

Weather Man

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Stellantis to temporarily close five North American plants
  • Stellantis (NYSE:STLA) will temporarily close five North American plants starting next week through early- or mid-April due to the semiconductor chip shortage.
  • The affected plants - all formerly part of Fiat Chrysler - are in Illinois, Michigan, Mexico and two in Ontario, and they build an array of products from older Ram 1500 pickup trucks and Jeep models to minivans and Dodge and Chrysler cars.
  • Several manufacturers including GM, Ford and Chinese EV start-up Nio earlier this week also announced production cuts or plans to extend downtime at facilities that have been affected by the chip shortage.
 

Weather Man

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Chip shortage rages on, but reshoring opportunities are growing: Alpha Tactics
  • The semiconductor shortage continues to impact different segments of the market.
  • On Friday, Nio temporarily suspended vehicle production at the JAC-NIO manufacturing plant in Hefei for five days due to lack of chips.
  • And Stellantis said it would temporarily close five North American plants.
  • The chip shortage was largely due to spiking pandemic-related demand for notebooks, smartphones, game consoles and other consumer electronics. And the auto industry cut orders for chips when demand plunged at the start of lockdowns and lost their already low priority at semiconductor foundries.
  • Semi equipment makers gained this past week, with Applied Materials (NASDAQ:AMAT) up 12%, KLA-Tencor (NASDAQ:KLAC) up 9% and Lam Research (NASDAQ:LRCX) up nearly 8%.
  • Auto chipmakers, which are getting pricing power, also gained, with STMicroelectronics (NYSE:STM) up 4%, Texas Instruments (NASDAQ:TXN) up 7% and Microchip (NASDAQ:MCHP) up nearly 4%, all higher three weeks in a row.
  • The Philadelphia Semiconductor ETF (NASDAQ:SOXX) rose nearly 3% last week and the VanEck Vectors Semiconductor ETF (NASDAQ:SMH) rose 3.4%.
  • “The semi shortage has highlighted the vulnerability of the supply chain for the US,” UBS says.
  • But Congressional and White House incentives for domestic production and a “sea change” on how companies view the supply chain could “accelerate the reshoring trend that has been a focus since the disruptive events of COVID-19 and the US China trade dispute,” the bank argues.
  • “Companies have recently commented on how the transition of supply chains out of China last year has helped them to weather the current crisis,” analyst Adam Scheiner writes in a note. “The crisis has also highlighted how companies cannot afford to have all their supply coming from one country that could shut down their entire manufacturing footprint. Localizing efforts could cause a boost in new factory construction, which could benefit companies exposed to automation and robotics technologies.”
  • He adds that new plants should have greater automation, which could benefit stocks in that area (see UBS chart below).

saupload_US_automation_UBS_032621_thumb1.png


  • Rockwell Automation (NYSE:ROK) is an “obvious beneficiary” and its “recent acquisitions have also dealt with remote monitoring and virtualization which has added attractiveness due to the recent pandemic.”
  • Emerson (NYSE:EMR) is another beneficiary, while Honeywell (NYSE:HON) has increased its automation exposure.
  • UBS also sees new spending for manufacturing and factory floor, good for Parker-Hannifin (NYSE:PH) and Fortive (NYSE:FTV).
  • Meanwhile, Seeking Alpha contributor Kwan-Chen argues Nvidia is not as vulnerable to the chip shortage as previously thought, and may emerge from tight supply earlier than rivals.
 

derklug

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If only this would lead to manufacturers simplifying their vehicles. Give it EFI and trans control, strip the rest of the tech BS out.
Like that is going to happen. When I started in automotive there was one chip, ECM. Now the most I have seen is 53 systems, with the simplest car running at least 8.
 

SonicDTR

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Like that is going to happen. When I started in automotive there was one chip, ECM. Now the most I have seen is 53 systems, with the simplest car running at least 8.

Yea I know, just a dream.

Chip capacity will take 5 years minimum to expand though, so if sales were affected enough by the shortages maybe...
 

Weather Man

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Hyundai reportedly plans to suspend production at key South Korean plant
  • Hyundai Motor (OTCPK:HYMLF) plans to temporarily suspend production at its Ulsan No.1 plant in South Korea from April 5 to April 13 due to the global chip shortage, according to Korea Economic Daily.
  • The Ulsan factory produces 311K vehicles annually including the Kona Electric and Ioniq 5.
  • Hyundai says an official decision on suspending production hasn't been made yet.
  • Shares of Hyundai are up 12.25% YTD in Seoul trading.
  • Read about Hyundai's electrification push.
 

Weather Man

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Fire at auto chip supplier Renesas caused more damage than expected
  • The recent fire at a Renesas (OTCPK:RNECF,OTCPK:RNECY) manufacturing facility affected 17 machines, six more than the company originally reported, according to a Nikkei Asian Review report.
  • The company says the damage from soot was worse than initially anticipated. The fire damaged production lines that produce advanced 300mm semiconductor wafers.
  • Renesas provides about one-third of the global supply of microcontroller units for the automotive industry. Two-thirds of the chips produced at the facility that had the fire were for the auto industry. Note that two out of the facility's three fabs remain in operation.
  • Other auto chip companies: NXP Semiconductor (NXPI -2.4%), STMicroelectronics (STM -2.1%), ON Semi (ON -3.3%), and Texas Instruments (TXN -1.1%).
  • Related: Renesas initially forecast a production pause of at least a month, but research firm TrendForce said it will be at least three months before production level ramps to pre-fire levels.
 

Fat Boss

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I got Applied Materials 3/8/21 @ $112.83....boom
AMAT

(I think it will split in the next year)

That's a decent entry point for AMAT. I doubt they'll split the stock though. They used to split it every time it got near 100, but it's been almost twenty years since they split it. Their peers have let their stocks run waaaay above AMAT's value per share, so I'd guess they'll let theirs run too. (See ASML, KLAC, LRCX)

The problem with AMAT, well one of them, is their market share is stagnant. They certainly enjoy run ups in revenue and valuations when the industry does well, but their market share is essentially the same as it was 8 years ago, or about when Gary Dickerson took the helm.

I've worked at AMAT three times and now back at LRCX for my 2nd stint. I chose to go back to LRCX in no small part due to their market share expansion. AMAT has outperformed LRCX stock over the near term, but look back five years and it's a different story. Both are good stocks though.
 

Weather Man

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Auto chip supplier Renesas faces three-month production pause after fire
  • Renesas Electronics (OTCPK:RNECF,OTCPK:RNECY) says it will take up to three months to resume normal production at the chip fab damaged by a recent fire.
  • The company again upward revises the number of machines damaged, which moved from 11 to 17 and now to 23.
  • The return to pre-fire production will take between 100 to 120 days.
  • Renesas expects to take a sale hit of $177.4-236.5M due to the production pause.
  • Renesas supplies about one-third of the global market for automotive microcontroller chips and about two-thirds of the h production from the halted line went to auto chips.
  • Short-term production replacement isn't possible since the global semiconductor shortage, which was already hammering the auto industry, has foundries running at max capacity.
  • Other auto chip companies: NXP Semi (NXPI +0.9%), ON Semi (ON +0.9%), and STMicroelectronics (STM -0.7%).
  • Background: The Renesas fire is another hurdle for the semiconductor shortage, which already faced a complicated recovery.
 

Weather Man

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Global chip shortage could cost automakers 1.3M production vehicles in Q2
  • A recent winter storm in Texas and fire at a Renesas (OTCPK:RNECF,OTCPK:RNECY) chip fab have left Q2 automotive output "as exposed" to the global chip quarter as Q1, according to IHS Markit. Semi supplies might not stabilize until Q4.
  • The shortage could cost automakers 1.3M production vehicles during the second quarter.
  • Early last month, IHS Markit said the shortage could impact 672,000 light vehicle production units in Q1, and predicted that the chip shortage would stretch until Q3.
  • Foundry giant TSMC (TSM +1.9%) and semiconductor equipment makers Lam Research (LRCX +3.6%), Applied Materials (AMAT +4.4%), and KLA (KLAC +3.4%) are all trading up. Lam reports earnings after the bell today.
  • Auto chip supplier stocks in the green include Texas Instruments (TXN +1.2%), ON Semi (ON +2.7%), and STMicroelectronics (STM +2.2%).
  • Yesterday, Renesas said it would likely take up to three months to return to pre-fire production levels at the affected fab.
  • Samsung's foundry said its operations in Austin, which were paused last month during a weather-related power outage, have returned to nearly normal levels.
 

Weather Man

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United Microelectronics reportedly increasing prices by up to 20%
  • United Microelectronics (UMC +2.2%) pure-play foundry peer Powerchip Semiconductor Manufacturing will raise their prices by 10-20% starting in April.
  • DigiTimes sources say the increased pricing will primarily apply to new orders and any order that comes with a short lead time.
  • Price increases help foundries with the expensive task of adding capacity, a top priority during a global semiconductor shortage.
  • Earlier today, research firm IHS Markit said the shortage, prolonged after a Texas power outage and a fabrication fire, could stretch into the fourth quarter.
 

Weather Man

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Micron stock gains after FQ2 beats with record auto sales and upside guidance
  • Micron (NASDAQ:MU) shares are up 2.6% after reporting fiscal Q2 results that beat top and bottom-line estimates and included an upside FQ3 forecast.
  • Revenue was up 30% on the year to $6.24B and the $0.98 EPS topped consensus estimates by three cents.
  • DRAM, which is under a supply crunch, represented 71% of FQ2 sales. Revenue was up 10% on the quarter and 44% on the year. Bit shipments were up in the high single-digit percentage range on the quarter, and ASPs were up slightly sequentially.
  • NAND revenue was up 5% Q/Q and 9% Y/Y. Bit shipments were up high-single-digit percent range on the quarter. ASPs were down low-single-digit percent range sequentially.
  • Operating cash flow was $3.08B versus $1.97B last quarter and $2.9B in last year's quarter.
  • Non-GAAP gross margin was 32.9% compared to 30.9% in FQ1 and 29.1% in last year's quarter.
  • "Micron delivered strong FQ2 results above our original projections driven by solid execution and higher-than-expected demand across multiple end markets. The DRAM market is in severe shortage, and the NAND market is showing signs of stabilization in the near term. The execution from the Micron team and these strengthened conditions enabled us to set revenue records for Mobile MCPs and automotive products, and to reach normal levels of inventory ahead of schedule," says CEO Sanjay Mehrotra.
  • For fiscal Q3, Micron expects revenue of $7.1B, plus or minus $200M, and EPS of $1.62, plus or minus $0.07. Consensus estimates expected $6.86B and $1.33, respectively. Micron also forecasts gross margin of 40.5-42.5%.
  • For CY21, Micron expects its DRAM and NAND bit supply growth to come in below industry demand. The industry demand forecast includes DRAM bit growth of about 20% and NAND growth in the low-to-mid 30% range.
  • Micron expects long-term DRAM and NAND bit supply growth CAGR in-line with the industry's forecasts for mid-to-high teens DRAM bit demand growth and 30% NAND growth.
 

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