Chip stocks lagged behind the broader market Monday following a report that Taiwan’s fabrication industry is pessimistic about U.S. efforts to lessen its reliance on foreign capacity, along with a string of downgrades in the analog-chip segment.
U.S. shares of Taiwan Semiconductor Manufacturing Co.
TSM,
fell as much as 6% Monday following a Financial Times article reporting that TSMC believes U.S. efforts to rebuild its domestic fab industry are “doomed to fail.” TSMC is the largest cap component out of 30 on the PHLX Semiconductor Index
SOX,
which fell nearly 2% Monday morning before paring losses later in the session to a 1% gain.
Morris Chang, TSMC founder, said that to U.S. House Leader Nancy Pelosi in stark terms during her visit to Taiwan back in August, according to the report, which said Mark Liu, the company chairman, and Taiwanese President Tsai Ing-wen were in attendance at the meeting.
“He was pretty blunt, and the esteemed guests were a bit surprised,” the FT reported, according to an unidentified source who heard Chang speaking to Pelosi.
Chang was referring to the $52 billion in funding from the U.S. CHIPS Act that passed to spur U.S. fab capacity, with Intel Corp.
INTC,
Texas Instruments Inc.
TXN,
and Micron Technology Inc.
MU,
among the main companies believed to benefit.
Read: Chip stocks crushed to two-year low as more tech, AI ban to China add to woes
The point of the funding is to strategically lessen U.S. reliance on Taiwan, where the majority of the world’s fab capacity is located. Should China ever invade Taiwan, which President Joe Biden has pledged the U.S. would help defend, every industry that relies on a microchip to manufacture a product, would effectively be crippled in the disruption. Meanwhile, the U.S. recently widened its restriction on advanced tech sales to China to curb the world’s second largest economy’s military ambitions.
Chip stocks were also weighed down by a string of downgrades from Barclays analyst Blayne Curtis, who expects analog-chip stocks, which have served the auto and industrial markets and have outperformed the SOX index year-to-date, to start correcting.
“We still see material cuts in PC/Handsets/Memory, but those names are further along the reset process and we would begin to rotate out of the ones who have not even begun,” Curtis said in a note Monday.
Curtis downgraded both Analog Devices Inc.
ADI,
and NXP Semiconductors NV
NXPI,
to equal-weight from overweight, and upgraded Texas Instruments Inc.
TXN,
to equal-weight from underweight. Analog Devices shares were down more than 2% Monday, while NXP was more than 1% lower.
For more: Early chip earnings provided a sigh of relief, but two more big tests are coming
“Texas Instruments should be a primary beneficiary of the Chips Act and a more muted 2022 due to supply constraints should lead to a smaller EPS correction vs. peers,” the Barclays analyst said. Texas Instruments is scheduled to report earnings Tuesday after the close of markets, and its stock was up 1% in Monday trading.
Curtis also downgraded Silicon Laboratories Inc.
SLAB,
to underweight from equal-weight, and Qorvo Inc.
QRVO,
to equal-weight from overweight. Silicon Labs shares were down the most out of the downgraded stocks, declining more than 5% at times on Monday.
