Last August, I ordered a 2022 Jeep Grand Cherokee L from the dealer, and I just received it last week.
We’ve nicknamed this thing “the star ship” because it’s like something out of a 1980s futuristic space movie — “We’re coming in hot, Iceman.”
It has more buttons than a 747. There are airbags in the suspension that can raise and lower it 12 inches and give it a 22-inch clearance for fording dangerous streams.
It has cameras everywhere, heat-seeking night vision, auto-driving, whistles, bells, Corinthian leather, and a panoramic sunroof.
It could be the fact that I was two whiskeys deep when we ordered this beast over a Zoom call, but in any event, we loaded it up. Did I mention it has 19 speakers, two-tone paint, and can tow a bungalow over Red Mountain Pass?
Anyway, the dealer said we were lucky because now, due to the chip shortage, you can’t get them with all the bells and whistles. The airbag suspension has been replaced with coil springs, etc…
And it’s getting worse.
Over the past two years, there has been a huge wait time for new semiconductor chips. Bloomberg recently reported that the wait time for chips has gone up, not down. It is now 25.8 weeks. That’s half a year! Companies across the board from Apple to Ford are losing billions in revenue.
Unfinished Ford trucks went from the production lines to parking lots as they waited for chips before heading to the dealership. Eight million fewer cars were made, costing automakers an estimated $210 billion in revenue.
Rumor has it that Chevy was forklifting new trucks into fields while it waits for chips to come in. Tata Motors (NYSE: TTM) of India just reported an earnings loss and falling revenue and blamed the lack of chips.
The Commerce Department says some U.S. manufacturers have less than five days’ worth of inventory.
Our government says the median demand for chips was 17% higher in 2021 than in 2019, and with the 5G rollout, this demand is expected to surge.
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There is also a mismatch between lower-margin old chips and higher-margin new chips. Obviously, the chip manufacturers are going to produce the most profitable chips even if the auto industry prefers the older, cheaper, more reliable ones.
It’s also a fact that most of the chip producers are located overseas, with the vast majority of them in Taiwan.
According to Computerworld:
Over the last 30 years, the U.S. share of global semiconductor production has fallen from 37% to just 12%… Today, three-quarters of semiconductor production occurs in East Asia. And 90% of the state-of-the-art semiconductors, such as 7 nm-process wafers, are manufactured in Taiwan.
The large chipmakers like Taiwan Semiconductor, Intel, and Samsung are spending hundreds of billions of dollars to build out new fabs, many of them in the U.S. or Japan. Some will hit the market this year, but most are three–five years out.
Semi Bailout Package
Last June, the Senate passed the U.S. Innovation and Competition Act (USICA), which has since stalled in the House. Per Computerworld, “It includes full funding for the CHIPS for America Act; that would provide $52 billion to spur private-sector investments in the United States.”
However, since it is a matter of national security, both parties are optimistic it will go through.
As you may imagine, semiconductor producers are cleaning up. We have five semi companies in the Bull and Bust Report portfolio, and all of them are up. Global semiconductor revenue was up 25% last year to $583 billion — a record high. It remains a great sector for investors.
I’ve found a small, little-known, U.S.-based chipmaker that is Department of Defense certified, meaning it meets the requirements for the CHIPS Act. I am working on my due diligence but will have the report ready for you in about a week.
Stay tuned,
Christian DeHaemer Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.
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