No Quick Fix Seen For Semiconductor Shortages Impacting Auto Industry
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PATRICK SEITZ04:04 PM ET 02/16/2021
Semiconductor shortages plaguing the automotive industry are likely to drag on past midyear, investment bank Morgan Stanley said Tuesday. The news is mixed for semiconductor stocks, analysts say.
"There is no quick remedy for tight supply conditions, though we do see bottlenecks beginning to ease by Q3," Morgan Stanley analyst Craig Hettenbach said in a note to clients Tuesday.
Semiconductor stocks with high exposure to the automotive industry should benefit from improved pricing near-term, but the chip shortages will cap revenue upside. Major chipmakers for the auto industry include NXP Semiconductors (NXPI), ON Semiconductor (ON), TE Connectivity (TEL) and Sensata Technologies (ST).
The chip shortages are mainly due to capacity constraints at foundries such as Taiwan Semiconductor Manufacturing (TSM).
"Foundries have just begun to allocate more capacity to autos, which should translate to increased output by the middle of Q2," Hettenbach said.
Automakers Idle Plants Amid Chip Shortages
A possible slowing of demand for PCs related to the work-from-home and school-at-home trends should free up additional capacity. But chips for 5G wireless and cloud data centers remain in high demand and are priorities for foundries, he said.
Automakers such as Ford (F), General Motors (GM) and Volkswagen (VWAGY) have idled factories amid the chip shortages.
Highlighting how acute the situation is, the U.S. government and the European Union separately are discussing efforts to increase their domestic semiconductor production.
"If the EU or U.S. went down that path it would represent a potential long-term solution but would not alter the supply/demand balance over the next one to two years," Hettenbach said.
Semiconductor stock analyst William Stein with Truist Securities sees shortages resolved by economic forces rather than public policy.
As demand for smartphone chips and graphics processors starts to slow down in the first or second quarter, foundries will open capacity for chips now experiencing shortages, such as those for the automotive industry, Stein said in his note to clients Tuesday.
Semiconductor Stocks Face 'Danger Zone'
Meanwhile, semiconductor lead times have entered the "danger zone," analyst Christopher Rolland said in a note. Rolland is a semiconductor stock analyst with Susquehanna Financial Group.
Lead times for chips from order to delivery are now at 14.1 weeks. That's just above the 14-week mark considered the danger zone, he said. Lead times increased nearly one week in January, Rolland said. Long lead times increase the possibility of double ordering and overproduction, he said.
"While things appear red hot for semis in the short term, we are growing more cautious over the long-term outlook as we believe the industry may be over-shipping to true demand," Rolland said. "Overall, we remain neutral on the industry given growing long-term risks from potential over-shipping."
Among semiconductor stocks, he has positive ratings on Broadcom (AVGO), Microchip Technology (MCHP) and ON Semiconductor.
Follow Patrick Seitz on Twitter at @IBD_PSeitz for more stories on consumer technology, software and semiconductor stocks.