Underlying trends cast doubt on chip boom's longevity
Seasonally adjusted Japan trade stats paint darker picture for exports
YOICHI NAGAI, NQN senior staff writer
TOKYO -- Some experts are sounding the alarm on a recent bull run in chip-related stocks driven by demand from smartphones and the "internet of things," warning that investors are more optimistic than market conditions warrant.
American technology stocks took a sudden dive June 9, led by e-commerce giant Amazon.com, and the shock in such a high-performing sector has rippled out to other markets. Japanese chipmaking equipment manufacturer Tokyo Electron slumped 6.7% in Tokyo over the five days through June 16. Taiwan Semiconductor Manufacturing Co. has not regained the year-to-date high that it hit June 9 in Taiwan. And South Korea's Samsung Electronics remains in record-high territory but range-bound.
The aggregate market capitalization of 30 companies in a U.S. stock index tracking the semiconductor sector surged 49% over the year through June 8, from $730 billion to $1.09 trillion, QUICK FactSet data shows. Then it proceeded to shed $55 billion in just five trading days through June 15.
Chip-related stocks had been enjoying nearly unprecedented gains. The PHLX Semiconductor Sector Index has been hovering near 1,100 -- its highest since the tech bubble of 2000. TSMC's market cap topped Toyota Motor's for the first time in May.
Equities analysts by and large remain bullish on the sector. "Chipmakers have a strong appetite for capital spending to expand production of NAND flash memory, which data centers use in large quantities," said Takeo Miyamoto at Mitsubishi UFJ Morgan Stanley Securities. "Tokyo Electron's correction will also be temporary."
Yet macroeconomic data tells a different story. Trade statistics from Japan's Ministry of Finance show exports up 4.1% on the year in volume terms in April, marking a third straight month of growth, with chipmaking equipment among the drivers.
But flying further under the radar is seasonally adjusted data based on these figures that the Cabinet Office releases as an appendix to its monthly economic reports. This information highlights trends that cannot be gleaned from the year-on-year data. Seasonally adjusted shipment volume fell 2.1% on the month in April, following a decline in March, on weak Asian exports.
"The chip business that the stock market thinks is doing so well is probably getting worse," warned Shunsuke Motani, co-founder of Sphynx Investment Research, an independent research firm. "The chip-stock bubble might be close to bursting."
Exports to China and the European Union remain brisk on a seasonally adjusted basis, Motani said. But he also noted a drop in shipments to the Association of Southeast Asian Nations and Asia's so-called newly industrialized economies, such as Singapore and South Korea, which together account for a third of Japan's exports. And data for individual product groups shows a slump this year in electrical equipment exports, which includes chipmaking equipment, he said.
Seasonally adjusted data from global tech manufacturing hubs such as Taiwan and South Korea also clearly shows production slowing and inventories piling up this year -- a consequence of growth in China's smartphone market running out of steam.
Few observers foresee a sudden chip crash. Demand, particularly for flash memory, will likely keep rising to some extent for such applications as upgrading data centers. But it seems clear that anticipation of a growing need for chips for the internet of things and ever-more-powerful smartphones -- rather than real demand -- has played a major role in the recent surge.
Some investors are getting unpleasant flashbacks. "Right now, the situation looks like it did before the 2000 tech bubble burst," said Fumiaki Sato, a co-founder and managing partner of Sangyo Sosei Advisory.