Q4 could be the best time to make a semiconductor bet – and Angie Ellis is backing ReRAM players
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Semiconductor supply chains have been high on trade meeting agendas in recent weeks.
It’s no surprise considering the global chip shortage has been estimated to last until 2022 – which means prolonged supply disruptions (and higher prices) for all kinds of electronics, smartphones, cars and consumables.
The Quad meeting this week (Japan, India, Australia and the US) launched a semiconductor supply chain initiative, with the aim to map capacity, identify vulnerabilities and bolster supply chain security for semiconductors and their vital components.
This could bode well for Aussie semiconductor stocks, and if you’re wondering when’s the best time to get into the sector, it could be right now.
The Bank of America’s semiconductor analysts say that between 2010 and 2020, the fourth and first quarters have been the two best quarters to own semiconductor stocks.
And the International Data Corporation (IDC) says that while front-end manufacturing is starting to meet demand in Q3, it will remain tight with larger issues and shortages in back-end manufacturing and materials.
The IDC flagged that the semiconductor market will grow by 17.3% in 2021 versus 10.8% in 2020.
The industry is expected to see normalisation and balance by the middle of 2022, with a potential for overcapacity in 2023 as larger scale capacity expansions begin to come online towards the end of 2022.
But overall, IDC predicts the semiconductor market to reach $600 billion by 2025 – representing a CAGR of 5.3% through the forecast period.
That’s higher than the typical 3-4% mature growth seen historically.
So now that Australia is part of the Quad gang, which semiconductor stocks are worth checking out?
We asked investment manager Angie Ellis at 80-20 Investments, and she says Resistive Random-Access-Memory (ReRAM) players are the best bet in the sector.
“Both Weebit Nano Ltd (ASX:WBT) and 4DS Memory Limited (ASX:4DS) are developing next generation Resistive Random-Access-Memory (ReRAM) computer memory technology as a type of non-volatile memory (NVRAM),” Ellis said.
“This has the speed of current computer memory however, similar to your laptop disk/SSD storage, the data is retained even when powered off.
“Potentially, in the future, doing away with disks/SSD storage and moving data closer to the CPU, making everything faster and opening more possibilities for what can be done in technology as a whole.”
The theory of ReRAM has been around for some time, in fact HP Labs was researching this “back in 2008 (memristor), but ReRAM is just one way of producing non-volatile memory”.
“And analysts predict the NVRAM market will be a $80 billion industry by 2025.”
4DS has a joint development agreement with Western Digital subsidiary HGST, a global storage leader, which is now in its eighth year.
“The recent success 4DS have had with its second run of wafers seem positive although it’s still a long path ahead,” Ellis said.
“How well does their tech stand up against the competition and will Western Digital be able to productise it and claim part of the growing market is speculation, however, they seem to be heading in the right direction.”
And just yesterday the company announced it had been granted its 32nd US patent – this time for its conductive amorphous oxide contact layers.
“The granting of patents is an extremely important strategy for the company to protect its unique Interface Switching ReRAM in the overall ReRAM space,” CEO and managing director Dr Guido Arnout said.
“Meanwhile Weebit seem to have their design sorted and have recently signed an agreement with Skywater to leverage Weebit’s ReRAM technology in its products used within the aerospace, defense, automotive, consumer, industrial and IoT industries,” Ellis said.
Based in Minnesota, SkyWater is a Nasdaq-listed semiconductor company with a market cap of around US$1.3 billion.
And the companies are targeting volume production by the end of 2022.
“So, it is very positive for them, although they are not aligned with any of the big players such as Samsung, Intel and Western Digital,” Ellis said.
Brainchip Holding (ASX:BRN) was another of Ellis’ favourites.
The company develops software and hardware accelerated solutions for advanced artificial intelligence (AI) and machine learning applications with a primary focus on the development of its Akida Neuromorphic Processor to provide a complete ultra-low power and fast AI Edge Network for vision, audio, olfactory and smart transducer applications.
“AI edge computing is predicted to be a $60 billion industry by 2025 and Brainchip is well-placed, combining both software and hardware for easy adoption across a various environments,” Ellis said.
“There is significant competition from niche players all the way up to mainstream computer vendors such as Intel and IBM.
“Volume production of their first platform started in April, NASA was an early adopter and a prominent vehicle manufacturer is evaluating their technology for advanced driver assistance systems and autonomous vehicles.
“They are looking very promising.”
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