Fitch Ratings-Chicago said that escalating tensions between the U.S. and China and the production challenges associated with coronaviruses will force U.S. technology supply chains to evolve over time.
Changes in the supply chain that lead to less dependence on China and greater US production of basic semiconductor components could have significant credit implications for the sector.
Costs would increase and large capital investments would be required, returns being delayed due to the time required to build infrastructure and build intellectual capacity.
Global trade tensions, in part due to national security concerns in the United States and the economic contraction caused by the pandemic, are major headwinds for the sector.
The increase in domestic production of the most advanced components could serve as a hedge against geopolitical risks.
Last week, the U.S. announced a new export restriction from Chinese telecom equipment maker Huawei, which further limits the ability of major semiconductor companies to supply unlicensed Huawei to the U.S.
Huawei, which remains on the list of American entities, has transferred certain orders to SMIC, the semiconductor manufacturer supported by the Chinese government, but SMIC does not have the technical prowess nor the capacity to advance the growth strategy of Huawei.
Taiwan Semiconductor (TSMC) announced last week its intention to build and operate a state-of-the-art semiconductor plant in Arizona with the mutual understanding and commitment of the support of the United States government. The announcement followed media reports that the Trump administration was working with technology companies, including Intel (A + / Stable) and TSMC, to boost domestic production of semiconductors, the main building block of hardware technological.
We view the US-TSMC alliance as a first step in building a more autonomous technology supply chain in the United States, given the high barriers to entry, particularly due to the large capital and design capabilities necessary for the manufacture of advanced semiconductors.
This news keeps the US dollar buoyant. More on this here: USD / JPY: bulls again under control, correction of recent pressures at stake