Goldman Sachs Research’s Toshiya Hari, Kota Yuzawa and Rod Hall discuss the impact of the global semiconductor chip shortage across industries and supply chains.
This is an unofficial transcript meant for reference. Accuracy is not guaranteed.
This exchange is common sense. And I am also need, then, of Goldman Sachs Research. Today going to explore the global ship shortage and why is causing major, we world consequences to do that. I'm joined by three of my colleagues and Goldman Sachs Research to shear hurry. Could I use our and right Hall first turned into a sheer who covers a? U S, semi conductors sectors for us too. She I welcomed the programme based for me also. Does she at these summits Dirt, cheap shortage is impacting so many industries. Worse, nearly daily stories about another industry being disrupted by it? We won the clock for us and describe how the industry got to this point. Sure So if we remind the clock too early, you, twenty, the site, Motor industry had just gone through a prolonged downturn.
primarily by inventory production, the supply chain and in our view, was on the verge of a simple to capture the thing Kobe hate in the spring and Knee jerk reaction on the part of the customers of the semiconductor companies that we cover was to reduce or cancel orders in anticipation, we demand environment. What transpired mediately post, the emergence, covered and during the pandemic was very different, though, and if anything they complete reverse happened and many applications. many of us working from home learning from home, went out in Bosnia. My pc is good council's WI, FI routers and demand for pars increases. As people moved the suburbs and avoided taking public transportation on the supply side, The equation: not only did the suppliers step on the brakes when customers reduced or cancel orders, but the lock down measures that were
place across many regions, made it very difficult for the supply chain to react and to increase production Furthermore, there are a number of exemptions, events or natural disasters. First Will the winner storm in Texas early this year that had been destructive to supply recovering over time so in a nutshell, Alison. The shortage has been caused by a combination of better than expected demand and also very bumpy recovery on supply side you mentioned some reasons why supply is taking so long to respond, but spin over a year now. So what explains battling the delay, of course, so take a very long time, for we cannot for companies to increase out, but it takes time to purchase the tools, it takes time to install the tools and for manufacturing of Egypt's takes a couple months as well. To give you some and for a front end, wafer processing tool elite.
I'm can be as long as six to nine months, sometimes longer installing and testing the tools before going into mass production can take several weeks for a couple of months depending on the factory and the actual. The option of a semiconductor church and be as long as three to four months, depending on the device type so assuming many companies in the industry came to the realisation that there was going to be a severe shortage of chips in late twenty years. Early, twenty twenty one and placed equipment orders, then their likely. updating delivery of those tools just around now or sometimes two three and would have access to the actual output only into four- and this is also mean that accompany already had the fat space and the clearing and place to be extended company is starting from scratch or applaud land. It would take multiple years as opposed to multiple quarters. Someone- Do you expect the situation to get better, do think peach shortage is untrue to so. The current quarter we expect tightness
You is somewhat into three more so the queue for and avoid the twenty twenty to that site. Given the expectation for companies up and down the supply chain to restock and been tory to a level that exceeds prepared on the global scene. We would expect another couple of quarters of strong semiconductor cell in for the entire supply chain to be comfortable with. Overall inventory laws soon the week about this are semiconductor companies, making any longer term changes to their supply chains and what about customers or policy makers? Are there any efforts there to reduce the strains on the industry in the short term, Thirdly, companies are increasing cutbacks and trying to address the shortage through. Suppose traditional measures, the one big chance, now appears to be happening, which is one of the more fundamental structural.
Time is customers and customers. Customers are increasingly willing to share their medium to long term. Demand forecasts what does a fireplace and more imports in some cases their right to sign long term contracts that provide more transparency and more predictability for the supplier. This way, the sun not your companies can plan ahead and they can invest with less hesitation which, in turn reduce the risk of severe shortages for the customer going forward as well separate from this, you're, seeing sovereign states, not just the United States, by governments around the world getting involved? Many governments have announced funding for the semiconductor industry. Some governments are in the process of riding up, policies to fund the domestic semiconductor industries to a addressed. The shortage be cream more robust local supply chains and see for national security purposes as well coming like an talent you, some see, have publicly stated there
intention to build capacity in the. U S. Also, in Europe, citing, the other fundamental change that seems to be happening in response to the current shortage of some conductors, so what all this mean for investors and for semi conductor stocks, the big I mean, if you will first summit, Other stocks, the industry historically early to this day, has been volatility, or is it locality, the Peter Trough and draft a geek changes. an historically had been really really large and, frankly It's been the biggest reason for these stocks to be trading at a significant discount. Furthermore, broader market today, stamp. There's tighter collaboration between the suppliers of the customers again in the form of endeavours, have a long term contracts Anthony the volatility of the cyclicality is reduced going forward. That should show up in the form of higher multiples for these stocks. Whether it be the doktor stocks with some each other women stocks,
should always serve as a positive, for the investor bases were found, This is going to continue to unfold thanks. So much for laying this out for us today to share venture very well now Could I use our of Goldman Sachs Research in Tokyo, husband, covering the audio and ATO part sector for more than fifteen years. Could I welcome to the programme? I beg your pardon me quota. Automakers have been among the hardest hit by the chip shortage. Can you explain the factors that have made this industry so vulnerable sure I don't know a couple thing. First of all, auto accounts for less than ten percent of the global and conduct a supply and on the back of it, ninety situation. There was a severe allocation battle. The wind sword and connected and consumer groups and enacted and historically Anderson conductor as less profitable business force in front of the company. little easy to make use of auto semiconductor Wherefer factly into because the marathon spigot doesnt really
I am a dismal lies. The discussion, but smartphone subcontractor, where for a family cannot be used for or doesn't run after, so what happened is that there was a big declining or to demand on the back of nineteen They ought to make us last water to the teeth and see, but at the same time, another very big, no demand increased all of a sudden, then You can already easily in sooth around the wherefore viable occasion, and it is getting a piece of meat difficult for way for company were symbol of the company to allocate more lever to auto industry. Secondly, to make things worse, stay, some kind of their family at witnesses, which is the number one bottle. My book into unit company in Japan had a fire is in fact in March they are rubbing up slowly to the hundred. some level utilization rate by the end of July, but it takes some time and finally, car is getting increasingly complicated.
Desiccation going on, you have autonomous features so semi contents, poorer people has been going from some around three hundred years dollar five six years ago, now it's about six hundred years dollar and its keeps growing. So how is the chief steward is expected to impact global Otto production this year he asked so we estimated rough free, three percent loss production due to some condemnation. this interest as a twenty one way seeing severe supply showed this problem, especially in this June quarter, and it's gonna get better into the September quarter. So three percent production loss It looks very small number body, translated into fifteen to twenty billion year, STAR Obregon, perfect losses for global automakers, which is found for and to fifteen percent of the global auto possible. So have we seen the p in disruptions or when do you expect the supply demand situation to normalize? Yes, a river says
worse than that, we spoke is getting better. They re started oppression, late me and we'll have proper way for outstanding some in the July, so that no empty conductor company a problem will get results within coupled month, but on the other hand, as we spoke, there are increased the demand for contents, both people and we are having significant supplied him ass sure these at Taiwan, foundries and wonderful companies. Just he asked them see. So we are seeing structural subway demand, tightness was conducted for aught application and we are expecting this tightness will continue throughout two thousand twenty two. There are significant topics: announcement from various total, some conduct a company past six month, so we are hoping some kind of capacity addition will have a positive impact for the supply demand, sometimes two sets of twenty three, but over the next twelve to eighteen month. I am pretty
sure that their supply demand tightness would continue for some conducted. So the chip shortage has not only shown how dependent the car industry is on a few suppliers, but also how vulnerable is too disruptions are automaker. taking this away and we evaluating their manufacturing supply chains and is What are some of the changes we are considering here? So there are very big gap when it citizen conduct a supply demand tightness. I think in particular to their did a very good job managing the extent and after a short supply. I think too, that is taking good balance between just in case adjusting I'm production systems, historical data- that was a pioneer asked, the just in time, management trying to see a very, very little investors to generate a very good working capital and also try to identify the customers niece and of being very flexible in terms of thumb in demand.
situation they experience is a very, very severe supply to strain. When we had a talk with greater earthquake in Tokyo ten years ago, I decided to go where adjusting case, management could spoken bonus just a conductor, and you stand. They decide to cheap at least four month of critical parts in my country and is having a positive impact for their production system. I think other automaker might have to follow turd ass practice and try to take a good balance between Justine Time and just in case less countries. Actually, policy for your working capital, but in order to cope with this Sl situation like this just in case management, probably makes a lot of sense so Lastly, let me ask you about the car market. If I want to buy a car right now, new are used. How is this affecting me? having a very, very big impact, especially on the used car market global basis. And if you take a look at the: U S,
photos. Market use car price actually doubled over the past six months on the back of special demand created by nineteen, and also the supply demand tightness of thought. Hardly avoid south also we're having pricing impact in the new car market, which is positive for comic, as by pro we are not good news for end users, like you, we I've seen roughly one thousand: U S dollars to be called his guns, shrinkage back in May, and we will continue to see very good favourable pricing environment for industry, meaning that consumers we'll have to pay. I said a lot of money for these supplied him and tightens anything that will last yes, so things will probably be kept better into the September water and more psychic back to the normal situation into December water. But, having said that, we are seeing today in supply demand throughout two thousand twenty two. So I think the worst is over into myself decent and conduct shortish, but
rising environment, continue to be very cyber war for auto industry over the next eighteen month, thanks so much for joining us today. Cutter. Thank you very much for having me and last, but certainly not least, will be speaking with broad hall, who covers the hardware and communications technology sectors for common sacks. Research rod welcomed the programme things often right so We heard earlier from Tunisia who explained how consumer demand for things like pcs and game consols skyrocketed during the pandemic. Wonder we're in communications tech sectors able to meet that demand. How the chip shortage has affected these industries. Your bags, it's been a really very Dallas than it depends on which particular consumer electronics, pieces technology or product for talking about, but pc have definitely been short. We ve been unable to supply of pcs to consumers and makes a lot of sense concerning we're all working at home and probably upgrading our pcs. I think
also been ashore supply. Apples said: there's three to four billion dollars worth of Ipod Revenue did have a role in two deceptive report because it can supply enough of those allotted out as educational demand, so those categories things the crossover between business and age. he's never really been in short supply. We seem less shortage in products like tvs in full, Mario and things like that, wanted the man, but there was enough amatory to cover those products. You mentioned there obviously about whether of consumer electronic companies. What have they been exploring? seen during this period. So we really What's the apple we ve seen a mixture of demand and, generally speaking, demands been very strong Ipad revenue growth is about seventy percent. This last quarter compared to five years a flat revenue growth. The same you for MAC? We seem very strong revenue growth in the last couple of quarters. Compare five years a flat revenue grows so
apples been very possibly impacted in those technologies that help people work and study from home, the eye phone also probably has been impacted less from a unit with you, but more from a revenue point of view, because the is piece of people buying more expensive phones. We think, as a result, government subsidies and also the fact that consumers have so much disposable income to apply these technology products. And so, if you look at things, new demand that you're seeing has put forward demand? Should we expect demand to be weaker at some point in the future? Because of this Now this is a matter of great debate. We believe it has put forward demand. We think that those statistics like us through our pretty informative, that you ve seen no growth in these categories for years and yet all the sudden, we seen it an incredible amount of growth. I think that we leave the doubtful forward May at
you wait over time as opposed to just immediately drop off in a binary way said, there's a little bit of debate in our minds about how fast, as attenuates but There are nodded attenuata get. We have put forward quite a bit it a man and will see somewhere on the net eighteen months, a fall off of demand, as consumers move their spending to other areas like going on vacation. For example. So what's the outlook for the sexual wrong Well, overall, we think for consumer electronics, the outlooks pretty poor. You know right now we're seeing incredibly high demand that will be followed by a period of weakness, has been organised. Any will come out the other side of that rule more normal world, but then the main I happened for a couple of years. We have talked about the idea of hardware: Part of this, servers, compute storage. Networking, all those products are probably gonna, be in a little bit. Higher demand with particular thing camp is now working and things enable people to do soon calls and
all kinds of other digital interaction on campuses as they go back to offices will be in high demand. So companies like Cisco, for example, should benefit from that. Actually, let me clarify that sell I really leaving zoom in rearview, Mirror little bed, so why do you think those sectors will benefit? well we're moving to a little bit more hybrid way of working. In my mind, I think all of us want to back in office, as all of us see a lot of benefits being together? Personally, I know that we in San Francisco was going back to San Francisco office have opened up more n. We all saw each other last week, which was gray. I think that at this in time. People have learned that these technologies can be leverage for greater efficiency. Where one word, I believe that people will be working from home a little bit more times. You want to be able to integrate people in the office, but people are in the office since then we have all learned as a great way to do that, but we need to enable that in the office we need greater network.
Patsy to support always video traffic, it loads networks substantially more than boys, so the reason that we think these technologies are gonna be really demand. The next couple of years by companies trying to make sure that can work any office say where does it all right? It does. The future work is loving here and some of what we ve seen will persist. Think so much for joining us today. Rod, drills and my pleasure. That concludes this happened out of exchanges of Goldman Sachs things for listening. have you enjoyed the show? We hope you subscribe, an apple pie, ass a liberating and comment. This podcast was accorded the week of June twenty first TWAIN, twenty one. all price references and market forecasts correspond to the date of this recording this podcast should not be copied distributed, published or reproduced in whole or in part. The information contained in this package does not constitute research or recommend
Asian from any Goldman Sachs Entity to the listener. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty as to the accuracy or completeness of the statements or any information contained in this podcast, and any liability, therefore, including in respect of direct indirect or consequential loss or damage, is expressly disclaimed. The views expressed in this podcast, or not necessarily those of Goldman Sachs and Goldman Sachs is not providing any financial, economic, legal, accounting or tax advice or recommendations in this podcast. In addition, the receipt of this podcast by any listener is not to be taken as constituting the giving of investment advice by Goldman Sachs too that listener, nor to constitute such person a client of any Goldman Sachs Entity.
Transcript generated on 2021-08-07.