Chip stocks lagged behind the broader market Monday following one report that Taiwan Semiconductor Manufacturing Co. is pessimistic about US efforts to build domestic capacity, and another that said the third-party chip manufacturer stopped work with a Chinese customer until it can determine if the products violate US restrictions.
US shares of TSMC TSM,
which had fallen as much as 6% in regular trading, closed down 3.9% at $61.29 on Monday following a Financial Times report that TSMC believes US efforts to rebuild its domestic fab industry are “doomed to fail.” TSMC is the largest-cap component out of 30 in the PHLX Semiconductor Index SOX,
which fell nearly 2% at one point before rebounding Monday, finishing up 0.6%, compared with a 1.2% gain by the S&P 500 index SPX,
Morris Chang, TSMC’s founder, said that to House Speaker Nancy Pelosi in stark terms during her visit to Taiwan back in August, according to the FT report, at a meeting where Mark Liu, the company’s chairman, and Taiwanese President Tsai Ing-wen were in attendance.
Chang was referring to the $52 billion in funding from the US CHIPS Act that Congress passed to spur US fab capacity, with Intel Corp. INTC,
Texas Instruments Inc. TXN,
and Micron Technology Inc. MU,
among the main companies believed to benefit.
“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.
The point of the funding is to strategically lessen US 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 US would help defend, every industry that relies on a microchip to manufacture a product would effectively be crippled by the disruption. Meanwhile, the US recently widened its restrictions on advanced tech sales to China to curb the world’s second-largest economy’s military ambitions.
Read: Chip stocks crushed to two-year low as more tech, AI ban to China add to woes
Another report, this one from Bloomberg, suggests that TSMC is also in a sticky situation when it comes to making chips designed by China startup Biren, which claims its BR100 data-center graphics-processing unit can take on Nvidia Corp.’s NVDA,
100. Nvidia recently said that widened restrictions on China would potentially cost it about $400 million in lost third-quarter sales. Nvidia is scheduled to report those results on Nov. 17.
Until it can determine whether or not manufacturing Biren designs violates US restrictions, TSMC has halted all work on Biren products, according to Bloomberg, citing an unidentified person close to the matter. Nvidia shares closed up 1.1% at $125.99.
A slew of downgrades from one analyst
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 finished down 1.4%, while NXP declined 0.2%.
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 finished up 1.2% on Monday.
Curtis also downgraded Silicon Laboratories Inc. SLAB,
to underweight from equal-weight, and Qorvo Inc. QRVO,
to equal-weight from overweight. While Qorvo shares closed up 0.6%, Silicon Labs shares dropped 5.1%.