Chip giants across the world raked in record setting revenues in the first quarter of 2021, largely due to the ongoing semiconductor shortage. Those soaring profits are set to keep on rolling as top industry execs, including Intel CEO Pat Gelsinger, expect the shortage to last through 2023 – and beyond.
As production remains below the surge in demand, lead times and prices will rise, setting the semiconductor industry up for another strong year in 2021.
Related ETF & Stocks: iShares PHLX Semiconductor ETF (SOXX), Taiwan Semiconductor Manufacturing Company Limited (TSM), Intel Corporation (INTC)
Semiconductor Companies Rake in Record Revenue
After a strong 2020, chip makers are already reporting record revenues in the first quarter of this year.
According to a report from Gartner, worldwide semiconductor revenue grew 10.4% in 2020 to roughly $466 billion, due to a dramatic surge in demand amid the COVID-19 pandemic. However, even as the pandemic subsides, chip manufacturers are still forecast to post record gains.
The International Data Corporation (IDC) predicts the semiconductor market will expand to $522 billion this year, a 12.5% YoY growth rate from last year’s highs. The strongest market for semiconductors was computing systems, which grew 17.3% year-over-year to $160 billion in 2020. That number is projected to rise 7.7% to $173 billion in 2021.
Additionally, the ongoing development of 5G capability in smartphones should increase chip demand further. The IDC writes that mobile phone semiconductor revenue growth was 9.1% in 2020, but that figure is forecast to grow 23.3% this year to a record $147 billion.
Last week, CNBC highlighted a report from Trendforce which found that the quarterly revenue of the 10 largest chip manufacturing companies combined rose to a record $22.75 billion. ZDnet writes that the Q1 growth is ‘remarkable’ after such strong performance the year prior.
Leading the way was Taiwan Semiconductor Manufacturing Company (TSMC), which accounted for 57% for the world’s chip foundry revenues at roughly $13 billion. ZDnet notes that other solid performers include Powerchip Semiconductor Manufacturing Corp (PSMC) at 14%, while China’s top chip maker SMIC brought in a 12% revenue increase in Q1.
However, not every chip maker saw their revenues climb. Samsung, the world’s second largest chip manufacturer, posted a 2% revenue drop. The company stated the underperformance was partly due to February’s freak winter storm that forced Samsung to shut production down at one of its plants.
If the semiconductor shortage persists, manufacturers should continue to post strong revenue growth throughout the year.
As Shortages Persist, Lead Times and Prices Jump
For now, it appears the deficits will last until 2022 at a minimum. In turn, lead times for components will rise and prices should continue to climb.
Intel CEO Pat Gelsinger recently reiterated his bearish sentiment that he expects the semiconductor shortage to last for several more years…