Here's what investors have been getting wrong about ASX semiconductor shares

For ASX semiconductor shares, the US-China trade war and chip shortage hasn’t been as much of a drag for companies as investors may have thought.

The ASX cohort of semiconductor shares is small compared to the US but it is the key market for many of them. Many of them specialise in unique, niche products and only sell to major electronics makers through third parties.

Companies have promoted themselves to investors on the basis that they have made so many technologies we take for granted today possible, from smartphones to electric vehicles. And they claim their products will only be in more demand as the power and capabilities of electronic devices increase.

Despite COVID-19 continuing to impact the global economy, the industry is expecting 15 per cent growth in 2021.

But what about the trade war & chip shortage?

Two factors have weighed heavily on the semiconductor industry, first the US-China trade war and second the global chip shortage. Investors have gone bearish on the industry whenever US-China trade tensions flared up but perhaps it has been over-rated as a factor.

Speaking with Stockhead, Giles Bourne, CEO of BluGlass (ASX:BLG), says China has little to no influence among some individual semiconductor products such as the laser diodes which his company specialises in.

“China is not a big player in the market, it’s a highly specialised product, [with a] high margin and not a lot of competitors,” he said.

“Will this shift to China? Probably not – it’s a hard product to manufacture and the technology is going to be Euro- and US-centric.”

As for the reported global shortage of semiconductors, Giles says this hasn’t been a factor either.

“In terms of the worldwide shortage – which comes from lockdowns – it’s mainstream devices that go in the automotive industry which doesn’t pay into what the laser diode space is,” he said.

Giles’ company is about to launch a laser diode product targeting many industries in the US. The most important is industrial cutting and welding – a fabrication process which joins metals together.

While Australian listed and domiciled, it has a facility in the US where the final assembly and shipping takes place.

Other ASX semiconductor shares focused on the US

Easily the best performing is BrainChip (ASX: BRN) which is more than a 10-bagger in just under a year.

The company is working on a chip designed to mimic the human brain and has recently begun volume manufacturing. Units are expected to be complete by August.

It hopes to eventually have a semiconductor technology that can function at the “edge”, without reliance on a central CPU or memory processor.

US-domiciled Revasum (ASX:RVS) makes equipment used in the manufacturing process for semiconductors. Having listed in late 2018 at $2 per share it fell as low as 20 cents in mid-2020.

But it undertook an executive overhaul and has begun to rise again as its sales have improved. It was particularly pleased with Joe Biden’s executive order calling for a semiconductor supply chain review, which might lead to US$50 billion to boost chip manufacturing.

4DS (ASX:4DS) makes high-grade storage memory which is faster than its peers but uses less power and space. While its Californian facilities have had restrictions due to COVID-19 it has continued to announce good results from its testing of wafer batches.

Weebit Nano (ASX:WBT) is also in the computer memory space and is targeting its first commercial agreement by the middle of the year.

Pivotal Systems (ASX:PVS) has a gas flow monitoring and control technology platform which helps chip makers manufacture faster. It is anticipating 35-45 per cent higher revenues in FY21 compared to FY20.

Rounding out the list of ASX semiconductor shares with a US focus is K2 Energy (ASX:KTE) which has a stake in a US semiconductor company, Atomera, that is developing proprietary technology for the tech sector.

Unfortunately it is currently at loggerheads with the ASX as to whether its operations are sufficient to warrant being listed and is trying to list on the NSX.