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Semiconductor stocks lagged behind the broader market Wednesday after South Korea announced plans for the world’s largest chip-making complex and one analyst pointed to shorter lead times at chip makers could result in cancellations.
The PHLX Semiconductor Index
SOX,
which tracks 30 components of the semiconductor industry and counts Nvidia Corp.
NVDA,
and third-party fab provider Taiwan Semiconductor Manufacturing Co.
TSM,
among its largest, was last down 1.3% Wednesday while the S&P 500 index
SPX,
declined 0.8% and the tech-heavy Nasdaq Composite Index
COMP,
was flat.
Earlier Wednesday, Samsung Electronics Co.
005930,
said it would contribute about $228 billion over the next 20 years to building what South Korea is billing as what will be the largest single chip-making complex in the world. American depositary shares of direct competitor TSMC fell 3% in recent activity.
Over the past few years, much of the drive to build chip-making capacity, such as last year’s $52 billion earmarked by the U.S. to expand domestic chipmaking, has stemmed from the two-year chip shortage brought on by the COVID-19 pandemic, but that shortage last year quickly flipped to a glut, which brings down the need for that extra capacity.
Adding to that, as chip makers turn around orders quicker, one analyst is concerned that could trigger order cancellations.
In a Wednesday note, Susquehanna Financial analyst Christopher Rolland said lead times — or the time it takes between placing an order and it being fulfilled — for the industry contracted for the ninth month in a row, another indication that the pandemic-triggered chip shortage of about two years is well behind us.
“Overall LTs are now approximately four weeks below record highs set in May, and we suspect true LTs may be falling faster as distributors are reluctant to lower quoted LTs in fear of bookings cancellations,” Rolland said.
Specifically, Rolland said that lead times showed “significant” declines at Microchip Technology Inc.
MCHP,
Broadcom Inc.
AVGO,
and Xilinx, which was acquired by Advanced Micro Devices Inc.
AMD,
last year. Rolland said lead times for so-called field-programmable gate array, or FPGA, chips that Xilinx makes and the main reason for the AMD acquisition, “have now fallen precipitously in the last few months.”
“We have heard from numerous companies this earnings season that FPGA LTs have been improving,” Rolland said. “We think this contraction may suggest the FPGA-heavy Networking end market may also be slowing,” meaning a negative for companies such as AMD, Broadcom, Marvell Technology Inc.
MRVL,
FPGA chips, which can be configured by a customer or a designer after they are made, are used as accelerators in data centers to boost computing power and improve power efficiency in existing physical spaces.
Rolland said that while lead times for broad-based suppliers like Microchip, Texas Instruments Inc.
TXN,
and NXP Semiconductors NV
NXPI,
“are coming down fast,” those for STMicroelectronics NV
STM,
Infineon Technologies AG
IFX,
and ON Semiconductor Corp.
ON,
are “more stable.”
Over the past 12 months, the SOX index has declined 7% — given 2023’s strong year out of the gate, with an 17% gain — while the Dow Jones Industrial Average
DJIA,
has shed 5% over the past 12 months, the S&P 500 index
SPX,
has fallen 9%, and the tech-heavy Nasdaq Composite Index
COMP,
has fallen 12%.
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