Taiwanese chipmakers are ahead of their international competitors and it will be difficult for US tech companies to reduce their reliance on Taiwan, CLSA’s Sebastian Hou said.
Technology firms like Apple, Amazon, Google, Qualcomm, NVIDIA and AMD rely heavily on Taiwanese contract manufacturers to produce up to 90% of their chips, said Hou, chief executive officer and head of technology research at the brokerage firm.
“It will be a challenging and long journey for them to diversify and think about how long it will take for chip development and collaboration – it will take a while,” he said on CNBC’s Street Signs Asia on Monday.
Semiconductors are used in everything from smartphones and computers to cars and household appliances.
While the US dominates the global semiconductor market share by sales, Asia is the manufacturing powerhouse, according to a recent report by Bank of America. Asian countries produce more than 70% of the world’s semiconductors – Taiwan and South Korea in particular have established unmatched positions in high-end chip manufacturing, the report said.
A man walks past TSMC headquarters at the company’s headquarters in Hsinchu, Taiwan. TSMC is the world’s largest semiconductor foundry.
Sam Yeh | AFP | Getty Images
Advantage for Taiwanese chip manufacturers
Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest chip foundry, is up more than 13% since the beginning of the year. Competitor United Microelectronics Corp, which is a distant second to TSMC in Taiwan’s chip chip contract manufacturing, gained around 16% over the same period.
CLSA has a buy recommendation on TSMC and a target price of 825 new Taiwanese dollars ($ 28.97) – 35% more than Friday.
The broker has an “Outperform” rating on UMC and a target price of 62 New Taiwan ($ 2.18), up 16.76% from last week’s closing price.
Hou explained that TSMC has higher risk between the two stocks – due to a larger spread between the target price and the current stock price – but offers higher returns. He added that the price target is “highly achievable” as the company is expected to maintain technology leadership for the next five years and customers will rely heavily on it.
China’s SMIC is lagging behind
In a report by market research firm TrendForce, China’s Semiconductor Manufacturing International Corporation (SMIC) was ranked fifth among the world’s top ten foundries based on estimated first-quarter figures in February.
SMIC is China’s largest and most important chip maker – it is seen as key to Beijing’s plans for self-sufficiency in the semiconductor space after tensions with Washington. Last December, the US blacklisted SMIC and prevented American companies from exporting technology to the company.
Hou said that given US sanctions, it would be nearly impossible for SMIC to catch up with TSMC and other chip manufacturers.
The technology gap between SMIC and TSMC is currently about six years, he said. If SMIC can’t acquire the technology it needs to bolster its high-end chip manufacturing capacity, it will fall further behind, Hou said.
“That means not only can it not catch up, but the gap will continue to widen,” Hou said, adding that the gap could stretch for seven to nine years.
A Reuters report last month said the US government was slow in approving licenses for American firms to sell chip-making equipment to SMIC.
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