For technology investors in 2021, there’s no escaping talk of the global semiconductor shortage, but for as onerous as that situation is, it’s not crimping equity returns.
For example, the VanEck Vectors Semiconductor ETF (SMH) is beating the S&P 500 Technology Index by about 520 basis points year-to-date. That out-performance is buoyed by strong sales figures, indicating the chip industry is making the best of the supply shortfall.
In the second quarter, global chip sales jumped 29.2% year-over-year to $133.6 billion – also good for an increase of 8.3% from the first quarter, according to the Semiconductor Industry Association (SIA). For investors considering SMH, the good news is that demand isn’t relenting. It’s increasing.
“Demand for semiconductors is projected to continue to rise substantially in the long term, as the world continues using chips to become smarter, greener, more productive, and better connected,” said John Neuffer, SIA president and CEO, in a statement.
Bolstering the case for SMH is the depth of end-market demand for semiconductors as the SIA points out in its June report. Computers, personal electronics, and smartphones are always primary end markets for chips, but electric vehicles and other renewable energy concepts, among other industries, are stoking rising demand too. In fact, the auto industry is an increasingly important market for SMH member firms,
“The SIA stated that in 2020, auto semiconductors demand was expected to decline by 10.1%, but the advance drivers’ assistance systems (blind spot detector, parking assistant, collision warning, etc.) and vehicle electrification will drive growth in the next few years. Deloitte also published a report where automotive electronics (powertrain, chassis, navigation, safety, radio, etc.) are estimated to account for 45% of car manufacturing costs by 2030,” said VanEck in a note out earlier this year.
Another point adding to the case for SMH is that semiconductors are truly a global industry.
“Regionally, year-to-year sales increased in Europe (43.2%), Asia Pacific/All Other (34.0%), China (28.3%), the Americas (22.9%), and Japan (21.2%). Month-to-month sales increased in the Americas (5.4%), Japan (2.5%), Europe (2.0%), China (1.1%), and Asia Pacific/All Other (1.0%),” adds the SIA.
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