Semiconductors are crucial, and in very high demand. These little chips are at the heart of our devices and without them, we’d be dead in the water… as they power just about everything tech in the most important spaces in our lives, from healthcare and agriculture to banking. Because they are so prolific, semiconductors have grown to become the world’s fourth most traded product… the industry is sitting pretty at a worth of about $555 billion globally. And semiconductor manufacturing is frequently recognized as one of the main critical supply chain priorities for the United States.
According to the Semiconductor Industry Association (SIA), global sales climbed to a hefty $50.9 billion in April of this year, an increase of 21.1% over last April. We’ve watched as the sales in the global semiconductor space has increased by more than 20% on a year-to-year basis for 13 consecutive months… evidence that demand will stay high and continue to grow. To support demand, we’ll need a ramp up of semiconductor research, design, and manufacturing in the coming years.
The Law Of Shortage And Demand
But just as we see semiconductor sales and demand going up, we’re finding ourselves amidst a shortage, a shortage that may continue through 2023, or possibly 2024. Intel CEO Pat Geisinger addressed the shortage at this year’s Davos event in Switzerland, stating that we’re about halfway through our current chip crisis. But this isn’t the first one we’ve had, there have been about seven in the past three decades… and that’s something that the space must rectify.
Semiconductors are vital to the American economy, with the industry employing about 277,000 people and generating $55.8 billion in national GDP. Unfortunately, the current global chip shortage has reduced U.S. GDP by around $240 billion… so the government has been working overtime to push through pieces of legislation around the space to help ease the shortage.
Legislation includes the CHIPS for America Act, passed last year, which authorizes provisions such as grants for strengthening domestic semiconductor manufacturing and research capabilities, the U.S. Innovation and Competition Act, which includes $52 billion in investments supporting the CHIPS Act passed by the Senate, and a version passed by the House called the America COMPETES Act that also includes $52 billion in CHIPS Act funding.
The legislation is expected to produce 66,000 research and development jobs and thousands of additional jobs in construction and manufacturing, while the tax incentives should kick off the construction and expansion of facilities to manufacture semiconductors. This should allow for continual growth over time for the space.
Deals To Watch
With so much riding on the semiconductor industry, expect growth and innovation… and opportunities. Those companies in and entering the space should fare well, and we’ll be watching intently to scout out fantastic opportunities for investment. Three companies in the space are on our IPO radar: Credo (CRDO), Ampere Computing, and Arm Ltd.
Credo is a San Jose-based networking chip designer founded in 2008 that serves the data infrastructure market by making chips and components that help hyperscale data center operators like AWS and Microsoft. They design application-specific integrated circuits (ASICs), optical display signal processors, and sell active electrical cables for intra data center connections. Most of the company’s money comes from selling networking chips and components and licensing technology directly to both vendors and customers.
Credo has raised funds from heavyweight investors, including Samsung, Cisco, and BlackRock and works with top hyperscale data center operators in the U.S. including Google, Facebook, Amazon, and Microsoft. The company filed its S-1 the first business day of 2022 in January and listed its shares on the NASDAQ later that month… the stock rose nearly 17% in its first day of trading, closing at $11.65, up $1.65 from its offer price, selling 20 million shares. Here above $12, it’s done remarkably well.
Santa-Clara-based Ampere Computing is a Semiconductor startup founded in 2018 by former Intel President Renee James which develops high-performance chips for hyperscale cloud, storage, and edge computing. The chips are designed for large-scale cloud computing and memory-intense applications such as artificial intelligence. The company, which is backed by Oracle, has filed confidentially for an initial public offering, but hasn’t determined how many shares will be offered, or their potential price. The firm plans to complete the public offering following the SEC review process.
Arm is a leading technology provider which licenses and sells semiconductor-related technology used in anything from cellphones to supercomputers. The company, headquartered in Cambridge, was founded in November of 1990 as Advanced RISC Machines Ltd and would later change its name to ARM Ltd In 1998. SoftBank Group Corp currently owns a controlling stake in the company and intends to keep that stake after the IPO… the company is eyeing a possible IPO in Q1 of 2023.
With global tensions high, supply chains stressed, ongoing conflict, and uncertainty plaguing the market, there’s not much in the world that is a sure bet right now… except that we need semiconductors… they are as vital to the functioning of our world as air and food, so we expect a lot to happen in the space in the next few years. Keep coming back as we track the progress and to see if any of these companies are impressive enough to end up on my Buy List.