Wednesday will be a bad day for owning semiconductor stocks – and China is the reason. Late last night the South China Morning Mail reported that semiconductor chip production in the Middle Kingdom rose 40% in the first quarter – more than twice as fast as total global semiconductor sales, according to data from the Semi Global Semiconductor Manufacturers Association.
Shares of leading chipmaker Advanced micro devices (NASDAQ: AMD) are down 4.5% through 2:10 PM ET. Lam Research (NASDAQ:LRCX) And Applied materials (NASDAQ: AMAT) — both machine builders to make semiconductor chips – are down 4.3% and 4.5% respectively.
Why China is important
Chinese chip makers are seeing ‘rising’ demand for their products from car companies (especially EVs) and smartphone manufacturers (such as Xiaomi). As slowing sales of electric vehicles and smartphones dominate headlines in the West, After says China’s EV sales are up 29% in the first quarter, and smartphone sales are up 17% – and China is building its own chips to supply them.
Denied access to advanced chips and chip-making equipment by the West, and spurred by local government edicts, Chinese companies are “redoubling their efforts to achieve self-reliance” in semiconductors. This could be bad news for both Western semiconductor makers and sellers of semiconductor manufacturing equipment – and could help explain why semiconductor manufacturers ASML missed income today.
What it means for semiconductor stocks
The After calls all this “an unintended consequence of U.S. export controls on advanced chip technology to China” and says it is “causing a wave of state-backed investments that will lead to overproduction and potentially Chinese dominance of global production of older chips.”
And you can see why this could worry investors.
According to data from S&P Global Market Intelligence, AMD derived 22% of its revenue from China in 2022, but by 2023 that number had fallen to just 15%. The story is similar for Lam Research, where Chinese sales fell from 31.4% of sales to 25.6%, and (to a lesser extent) Applied Materials – from 28.1% to 27.3%.
As China takes over the semiconductor industry, these revenues could decline further. So could stock prices.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, Applied Materials, and Lam Research. The Motley Fool has a disclosure policy.
Why AMD, Applied Materials and Lam Research Stocks All Tumbled Today was originally published by The Motley Fool
