By Wallace Witkowski
“PC demand has been off-the-charts strong,” Rasgon said, adding that IDC’s shipment estimate is above the largest number of PCs shipped in a year, surpassing the record set in 2011 of 352.4 million units. “So the big controversy there is how long is that demand going to last, and how much of it was sustainable?” Rasgon said.
By way of a personal example, Rasgon said he bought four notebook computers last year as a result of COVID, and that businesses and consumers had similar higher-than-usual PC purchases in 2020. While IDC predicts that PC sales growth will continue in 2021, many wonder if that demand has already been sated.
“I’m probably not buying any PCs for a while,” Rasgon said.
Still, makers of CPUs, or central processing units, the chips that act as the brains for every personal PC and public-cloud data center, stand to benefit in a market that is dominated by Intel and Advanced Micro Devices Inc. /zigman2/quotes/208144392/composite AMD -3.66% , which has gradually been taking market share away from larger rival Intel.
AMD also competes with larger rival Nvidia Corp. /zigman2/quotes/200467500/composite NVDA -4.20% in the GPU, or graphics processing unit, space.
See also: Nvidia steps up competition with Intel and AMD with first data-center CPU
Both Nvidia and AMD benefit from “massive supply constraints” because of a significantly better crop of gaming chips this past year as well as a new gaming consoles, and a renewed interest in cryptocurrency mining, Rasgon said. And since, these are high-demand, big ticket items, they’re the most profitable for third-party silicon wafer manufacturers and so they get priority booking, Rasgon said.
“Go out and try to buy a graphics card, good luck,” Rasgon said.
GPUs that are used in data centers are not as supply-constrained, but lead times are exceptionally long because Nvidia still needs to get the components to build the units.
“Everything they’re shipping now was ordered two quarters ago,” Rasgon said. “Because of that, the recent server digestion cycle didn’t affect Nvidia at all.”
Smartphones are also being hit with the supply shortage. Major supplier Qualcomm Inc. /zigman2/quotes/206679220/composite QCOM -3.30% said recently that they would have sold much more product had it not been for supply constraints.
Smartphone suppliers, however, may not get as much as a tailwind that some other chip companies will, Rasgon said. Other smartphone suppliers include Taiwan’s MediaTek Inc. /zigman2/quotes/203910191/delayed TW:2454 -5.99% , Broadcom Inc. /zigman2/quotes/200646538/composite AVGO -1.64% , Skyworks Solutions Inc. , Cirrus Logic Inc. /zigman2/quotes/208789077/composite CRUS -3.97% , Qorvo Inc. /zigman2/quotes/209919828/composite QRVO -1.96% , and STMicroelectronics NV /zigman2/quotes/207734906/composite STM -3.40% .
“Unit demand has not been super,” the Bernstein analyst said. “It has gotten less, less bad.”
“Smartphones have been weak for a while,” Rasgon said. “I mean they all look the same like featureless slab of glass . People see less of a need to upgrade.”
One of the biggest heralded boosts for smartphone upgrades over the past few years has been the recently released 5G standard, but Rasgon said that “consumer demand for 5G is zero.”
“People will buy 5G phones because that’s what’s being sold,” he said.
“Fabs,” or foundries, are what the semiconductor industry calls the complex manufacturing plants where silicon wafers used in computer chips are fabricated down to billionth-of-a-meter accuracy. When the chip shortages during COVID-19 first became evident, fabs world-wide were already running at capacity and had order backlogs that ran as much as several months.
That’s prompted many fabs to respond by committing to invest hundreds of billions of dollars into building new facilities. That, however, is not only an expensive process but a lengthy one seeing it takes and average of two years between breaking ground and producing the first wafers.
Major third-party fab Taiwan Semiconductor Manufacturing Co. /zigman2/quotes/204359850/composite TSM -5.81% plans to invest up to $100 billion in new fabs over the next three years, while Intel said it plans to spend $20 billion in upgrading its fabs this year and branch out into becoming a third-party manufacture of other companies’ wafer. In its most recent earnings report , TSMC stressed it was making auto customers a top priority and forecast an easing of the shortage by the second quarter.
Meanwhile, Samsung, the other large third-party fab, is expected to keep its capex at around $28 billion in 2021 , flat from a year ago, according to IC Insights.
Memory-chip maker Micron Technologies Inc. /zigman2/quotes/205710729/composite MU -2.95% faced questions on why it wasn’t spending more than the $9 billion it was planning to spend this year. As recently as two years ago, Micron cut back on investing in new fab capacity in response to 2018’s chip glut that hamstrung several chip makers with massive inventories.
Additionally, the U.S. has pledged $50 billion to build out domestic chip-making infrastructure.
“The build-outs that we see coming in the next two years are going to be pretty aggressive build-outs,” Forrester’s O’ Donnell said. “There’s a lot of capex being spent.”
“That’s going to take a while so I think this shortage is here with us for a prolonged period of time,” O’ Donnell said.
The big winners here are going to be the companies that make the highly specialized — and expensive — equipment used to build chip foundries. Those companies include Lam Research Corp. /zigman2/quotes/208077897/composite LRCX -7.35% , KLA Corp. /zigman2/quotes/209248041/composite KLAC -7.15% , Applied Materials Inc. /zigman2/quotes/209393259/composite AMAT -5.18% , ASML Holding NV /zigman2/quotes/210293876/composite ASML -5.47% , Entegris Inc. /zigman2/quotes/200628784/composite ENTG -4.07% , MKS Instruments Inc. /zigman2/quotes/208573663/composite MKSI -6.15% , and Teradyne Inc. /zigman2/quotes/208321188/composite TER -4.19% . Excluding Teradyne, all six of those stocks closed at record highs on April 5.
What’s overlooked, however, is how geopolitics are changing the chip sector. Since the U.S. shut China out of several components in trade war, Chinese companies like Huawei have had to look elsewhere, and are being forced to become more independent. That might come back to haunt the U.S. as far as competition goes, O’Donnell said
“China becomes a stronger player just out of sheer necessity, O’Donnell said.