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Fleas are back. But not equally or for everyone

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In the space of six months, the global semiconductor industry has gone from one of the hottest sectors to one of the most bruised and battered. An economic slowdown, continued Covid lockdowns in China, heightened tensions in the Taiwan Strait and tougher rules from Washington have wiped nearly $2 trillion from the value of listed chipmakers.

Now they are back. An extraordinary turnaround over the past month has added $600 billion to the value of these companies. The rebound was not evenly distributed, however, with some geographies and product sectors doing better than others.

A Bloomberg Opinion analysis of more than 220 publicly traded global chip companies with a market value of at least $1 billion found investors brushed off concerns about the US government’s tougher transfer rules technology to China. At the same time, semiconductor players in the world’s second-largest economy have fared less well, despite recent measures to ease Covid Zero and boost the local economy.

The Biden administration early last month announced it would end access to machinery, software and support that Chinese chipmakers use to manufacture components at 14 nanometers or better. The majority of the capacity is currently 28 nanometers or more, but the new rules are intended to ensure that Beijing does not catch up with the United States and its allies. Stocks of equipment and service providers such as Lam Research Corp. plunged amid fears that China was suddenly off limits.

Chip designers such as Nvidia Corp. and Advanced Micro Devices Inc. also suffered from the belief that Chinese customers would no longer be allowed to source their advanced components used to power artificial intelligence and high-performance computing systems. Likewise, these measures were meant to boost local chip players in China, as the industry benefits from government support aimed at shifting the balance of foreign companies.

Investors now see it differently. Over the past month, the weighted average return of the global semiconductor sector has jumped 21%. The sector is still down about 30% for the year with just two names among mid- and large-cap growth companies (GlobalFoundries Inc. and On Semiconductor Corp.).

Nvidia and AMD, along with Dutch equipment maker ASML Holding NV, led the gains. In fact, it was the biggest players – with market values ​​over $100 billion – that were the main beneficiaries of this turnaround, climbing an average of 23.5%. This could be a sign that investors are ready to return, but would prefer to stick with the blue chip names: Taiwan Semiconductor Manufacturing Co. added nearly $70 billion to its market value in the past month. Small cap companies, which we define as those between $1 billion and $10 billion, are lagging behind.

Note that we excluded Samsung Electronics Co. from our analysis because although it is a major chipmaker, less than a third of its revenue comes from semiconductors.

Perhaps the biggest sign that investors aren’t concerned about China’s tougher sales regulations is the fact that seven of the top 10 companies are suppliers of equipment or related services. These companies also have the potential to be among the biggest losers after big names including TSMC, Intel Corp. and SK Hynix Inc., have cut their spending budgets for this year citing a supply glut and a deteriorating economic outlook. But rather than canceling orders, it looks increasingly likely that chipmakers will simply postpone purchases until next year in anticipation of long-term growth.

Although much smaller than average Taiwanese and American chipmakers, China’s sheer number of listed companies makes the country a major player in global capital markets, although that has yet to translate into share. of the supply chain.

This plethora of new entrants is largely due to Chinese leader Xi Jinping’s plan to boost the local sector, complemented by preferential treatment and government spending. This should be positive for the industry. But investors don’t seem to believe it will benefit much, even as the United States works harder and harder to cut off the world’s most populous nation from the rest of the planet. Apart from South Korea, which suffers from a heavy reliance on the extremely sluggish memory chip sector, Chinese semiconductor companies have lagged the rebounds of their US, Japanese and Taiwanese counterparts.

The sharp drop in chipmakers in the middle of this year was a stark reminder to investors and the industry not to take the sector for granted. Yet as the dust settles, tensions ease, and world leaders come together once again, the same reasons to fall in love with chips are beginning to reappear. Until the next crisis.

More from this writer and others on Bloomberg Opinion:

• These stricter rules on Chinese tokens are terribly timed: Tim Culpan

• Auto industry is economy’s best hope right now: Conor Sen

• Apple’s chip US move is as much about marketing as it is about technology: Tim Culpan

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Tim Culpan is a Bloomberg Opinion columnist covering technology in Asia. Previously, he was a technology reporter for Bloomberg News.

More stories like this are available at bloomberg.com/opinion