The semiconductor space has advanced dramatically over the past year, especially since the COVID-19 pandemic accelerated digitalization across all sectors. As the semiconductor industry grapples with surging demand, transparency into the supply chain is critical, according to Mike Splinter, chairman of Nasdaq's board of directors.
"The companies that make semiconductors have to have extraordinary visibility through their supply chain, and transparency and dialogue would really help," Splinter, who also serves as a director on the board of Taiwan Semiconductor Manufacturing Company (TSM), said during an interview with Nasdaq Global Markets reporter Jill Malandrino at a recent visit to the Nasdaq MarketSite.
The demand for semiconductors has been building amid the rise of new technologies – from 5G and streaming to artificial intelligence and advanced driver assistance systems. However, as Splinter noted, while demand has increased, only a few companies can make the most advanced semiconductors, resulting in widespread shortages. Already this year, several automakers, such as Ford, as well as phone manufacturers, have had to adjust their production levels due to the chip shortage.
"To make a smartphone or a computer, you need many different kinds of semiconductors. So that's why the whole industry is moving to try to attack that shortage, build more capacity and get those chips in the marketplace, so we stave off the shortage," said Splinter.
As the industry works to increase supply, Splinter acknowledged that improved transparency from the end-users about how they're viewing demand is "critically important," as developing a semiconductor fabrication plant is quite expensive – roughly $20 billion, he estimated – and takes several years to build and begin production.
"Now there is a confluence of different applications and technologies that need semiconductors like never before, so I think there's going to be very, very strong demand in these next few years," Splinter said. "The opportunities are tremendous."
As investors gauge the rapid development of this space, Nasdaq offers a leading benchmark for the semiconductor industry: the PHLX Semiconductor Sector IndexTM (SOXTM). The index is modified market capitalization-weighted and composed of companies primarily involved in the design, distribution, manufacture, and sale of semiconductors. Some of the securities in the index include Marvell Technology (MRVL), Qualcomm (QCOM), Advanced Micro Devices (AMD), Nvidia (NVDA) and Texas Instruments (TXN), plus 25 others.
Since its launch in 1993, SOX has become one of the best-known and most widely tracked subsector indexes. Leading asset managers from across the globe license SOX to create their ETFs, including Invesco in the U.S. (SOXQ), Cathay in Taiwan (00830) and Mirae Asset Management in Korea (381180).
For more information about the PHLX Semiconductor Index, read "Semiconductors in the Turbocharged, COVID-19 Era of Thematic Tech."