Wednesday is turning into a bad day to own semiconductor stocks -- and China is the reason. Late last night, the South China Morning Post reported that semiconductor chip output in the Middle Kingdom surged 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 (AMD +1.64%) are down 4.5% through 2:10 p.m. ET. Lam Research (LRCX 0.43%) and Applied Materials (AMAT 1.44%) -- both builders of machines to make semiconductor chips -- are down 4.3% and 4.5%, respectively.
NASDAQ: AMD
Key Data Points
Why China is important
Chinese chipmakers are seeing "soaring" demand for their products from automobile companies (EVs especially) and smartphone manufacturers (such as Xiaomi). While slowing sales of EVs and smartphones dominate headlines in the West, the Post says Chinese EV sales grew 29% in Q1, and smartphone sales rose 17% -- and China's building its own chips to supply them.
Denied access to advanced chips and chipmaking equipment by the West, and spurred by local government edicts, Chinese companies are "doubling down on ... efforts to achieve self-reliance" in semiconductors. This could be bad news both for Western makers of semiconductors and for sellers of semiconductor manufacturing equipment -- and help explain why equipment manufacturer ASML missed earnings today.
What it means for semiconductor stocks
The Post calls all this "an unintended consequence of US export controls on advanced chip technology to China," and says it's causing "a wave of state-backed investment leading to overproduction and, potentially, Chinese dominance of global legacy-chip production."
And you can see why that might worry investors.
According to S&P Global Market Intelligence data, AMD got 22% of its revenue from China in 2022 -- but by 2023, that number had dwindled to only 15%. The story is similar for Lam Research, where China sales slid from 31.4% of revenue to 25.6%, and (to a lesser extent) Applied Materials -- from 28.1% to 27.3%.
As China moves to take over the semiconductor industry, those revenues could fall further. So could the share prices.
