An analyst reports that there is a slight drop in global phone demand
Constellation Research Principal Analyst & Founder R “Ray” Wang joins Yahoo Finance Live to discuss chip stocks, semiconductor supply, the implications for products such as smartphones, and where investors can find value in the chip space.
Video Transcript
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AKIKO FUJITA According to our next guest, memory chips will remain in a state of glut. Let’s get into the details with Ray Wang (principal analyst, founder of Constellation Research). Ray, As Inez said, it almost seems that investors seem to be taking all this in stride. These boom-bust cycles are part of the sector, you’ve stated. These numbers are a major concern for Samsung.
R. “RAY” WANG: Samsung is a bellwether. Micron reported on it. We’ve moved from a chips–scarcity in chips to a glut. This is one of the problems that we face. These are all typical cycles.
These are the two-year cycles we see in the market. In this half-trillion-dollar market, we expect a 5% to 6-percent decrease in demand. This is partly because we’ve moved from products to services. We have come out of the pandemic. Everyone bought what he or she wanted. They then wanted the experiences.
China will have to go through this cycle. This means that having more computing power and less chips in devices will be more important than ever. This is already happening in the marketplace.
RACHELLE AKUFFO: Ray, what chance is there that Samsung will be following Micron’s strategy of reducing manufacturing to really lift particular the memory market?
R. “RAY” WANG: Because there is a glut, they must take that strategy. The pandemic was actually a result of people overstocking because they couldn’t get the chips they needed. In terms of supply, there was an ill-conceived model.
So, the demand and supply models weren’t in line. We are starting to see this effect. It will take six to eight quarters for the recovery process to begin.
AKIKO FUJITA Ray, this begs the question – we have seen so many investments, at least in the US for chip production. This is part Biden’s push for building back at home. Your concern has been that there would be overproduction here and a glut.
We’re only talking about six to eight more months. Given the investment history, I am curious if there are any knock-on effects that you believe we should look into.
R. “RAY” WANG: You’re correct about the knock-on effect. One of these is China’s chip restrictions. We will see a decrease in demand overall, particularly for specialty and advanced chips. The $39 billion investment we see in TSMC is what you are referring to when it comes to chip plants. It will be in Phoenix as well as two new plants.
These are the 3-nanometer chips which are being produced. These chips will be brand new. These chips will be different from the rest in terms of what is available on the market.
We are seeing a flattening in demand right now, but this will change in the next 24 months. It takes time to get a chip plant operational. So this decoupling, deglobalization and deglobalization regarding supply chains in China will take effect not only here in the US. It will be implemented in Europe too, as they want to be able produce chip production and other parts Asia that are trying to lessen their dependence on China.
RACHELLE AKUFFO: As you pointed out, the chip with a 3-nanometer resolution is the most advanced. You expect Apple to take this lead. These chips are quite expensive at Taiwan Semiconductor. What does this mean for the price of these phones, when there is already a decline in demand?
R. “RAY” WANG: The global demand for phones is decreasing at the moment, especially the top-end models. It will actually have some effect. Apple usually jumps in to this market first than anyone else.
It is possible to see some delays in how quickly the 3-nanometer chip will be consumed. However, we see a growing specialty chip market. As we have heard from the auto industry, specialty chips will become more specific in their use. These chips will actually be more important than the general memory chips we have today in terms of increasing demand.
AKIKO FUJITA Ray, although some investors seem to be taking today’s news with a grain of salt, the entire semiconductor sector has been hurt. This feels like a great time to invest. You might be asking yourself, “Who offers the greatest value?”
R. “RAY” WANG: The majority of the current investments are in AMD. Given their position, we see some very interesting chips at CES this season. Nvidia also has a lot to invest in AI and high-scale computing.
Broadcom is an interesting company because of their new acquisition or the completion of the acquisition VMware. Analog Devices, of course, is still available. TSMC is a market leader for those who actually play in it with TSMC.
RACHELLE AKUFFO: It’s always great to hear your thoughts, Ray Wang there (principal analyst, founder of Constellation Research). Have a great weekend.