The Global Semiconductor Shortage and How to Use it to your advantage
Semiconductors are a vital component of almost all electronics and as such are very present in our everyday lives, making up an industry worth 429.5 Billion USD. For example, whatever device you are using to view this article undoubtedly uses semiconductors in its internals.
In recent years, rising tensions between China and the United States have disrupted the semiconductor trade, with the US making it difficult for its citizens to outsource the production of semiconductors to China. As the United States works to cut out its dependence on Chinese imports, semiconductors will undoubtedly become one of its key focuses. China withholding such a critical electronic component could temporarily cripple the United States’ ability to produce electronics. China currently produces almost a quarter of the world’s semiconductors. Additionally, Taiwan produces approximately 21% of the world’s semiconductors, which is also affected because of the complicated relationship concerning Taiwan’s sovereignty.
Despite hurting the markets as a whole, this conflict does benefit one group: American semiconductor companies. Not only have their largest competitors been removed, but on July 28 of this year, the United States government approved $56 billion in government funding to boost semiconductor manufacturing in the US. In return, companies receiving grants have to agree to not engage in transactions with China or other countries of concern for 10 years. Even though this somewhat limits markets these companies expand into, pre-existing restrictions already make such trade very difficult, especially for products that are vital to national security like semiconductors.
Texas Instruments Inc. (TXN)
Texas Instruments is one of the world’s largest semiconductor companies, with a $140 billion evaluation. The company has been around since 1930 and has weathered numerous market crashes, proving resilience in the face of bearish markets. Texas Instruments holds an estimated 80% market share of the international graphing calculator market, holding a monopoly on a $465.55 Million market. Despite being a relatively small market, graphing calculators are used in most schools and as such create consistent revenue. Texas Instruments also offers a quarterly dividend of 2.99%, topping the market median by some 0.12%.
Financials
In the last four quarters, Texas Instruments has increased sales from $4.643 billion in Q3 2021 to $5.241 billion in Q3 of this year. Net income has likewise increased from $1.947 billion in Q3 2021 to $2.295 billion in Q3 2022.
Texas Instruments boasts a Net profit margin hovering around 44% quarter to quarter (minor fluctuations), which while not mind-blowing for the semiconductor industry, still puts Texas Instruments above most competitors handily.
Closing thoughts
Overall, Texas Instruments is a good investment if you are looking to invest in the semiconductor market. It is protected against and benefits from the current shortage in semiconductors. While this could be profitable in a shorter time frame, I would recommend holding Texas Instruments for long-term gains.