Semiconductor stocks lagged the broader market on Wednesday after South Korea announced plans for the world’s largest chip-making complex and one analyst pointed to short lead times at chip makers. The PHLX Semiconductor Index SOX, -1.09% , which tracks 30 components of the semiconductor industry, and Nvidia Corp . NVDA, +0.69% and third-party fab provider Taiwan Semiconductor Manufacturing Co. TSM, -2.90% were among its biggest. Down 1.3% on Wednesday while the S&P 500 index SPX, -0.70% fell 0.8% and the tech-heavy Nasdaq Composite index COMP, +0.05% was flat. Earlier Wednesday, Samsung Electronics Co. 005930, +1.36% said it would contribute about $228 billion over the next 20 years to build what South Korea will be the world’s largest single chip-manufacturing complex. American Depositary Shares of direct rival TSMC were down 3% in recent activity. Over the past few years, much of the drive to build chip-making capacity, such as the $52 billion the US allocated last year to expand domestic chipmaking, has stemmed from a two-year chip shortage brought on by the Covid-19 pandemic, but that shortage last year Congested quickly, which brings down the need for additional capacity. Adding to that, chip makers turn around orders quickly, an analyst worried that could lead to order cancellations. In a note Wednesday, Susquehanna Financial analyst Christopher Rowland said lead times — or the time it takes between placing an order and having it fulfilled — contracted for the ninth consecutive month for the industry, another sign that the pandemic is causing chip shortages. Almost two years are behind us. “Overall LTs are now about four weeks below the record high set in May, and we suspect that true LTs are falling even faster as distributors are reluctant to lower quoted LTs for fear of booking cancellations,” Rowland said. Specifically, Rowland said that Microchip Technology Inc. MCHP, -3.28% , Broadcom Inc. AVGO, -1.02% , and advanced microdevices Inc. showed a “significant” decline in lead time on Xilinx. was acquired by AMD, +2.55% . Lead times for so-called field-programmable gate arrays, or FPGAs, the chips that Xilinx makes and are the main reason for the AMD acquisition, have fallen sharply over the past few months, Varsh Rowland said. “We’ve heard from numerous companies this earnings season that FPGA LTs are improving,” Roland said. “We think this contraction suggests that the FPGA-heavy networking end market may also slow down,” said AMD, Broadcom, Marvell Technology Inc. Negative for companies like MRVL, -2.56% . FPGA chips, which can be configured after being manufactured by the customer or designer, are used as accelerators in data centers to increase computing power and improve power efficiency in existing physical spaces. Rowland said that while Microchip, Texas Instruments Inc. Lead times are “coming down fast,” for broad-based suppliers such as TXN, -0.76% and NXP Semiconductors NV NXPI, -2.36% , for STMicroelectronics NV STM, -4.01% , Infineon. Technologies AG IFX, -4.78% , and ON Semiconductor Corp . ON, -3.94% is “more stable.” Over the past 12 months, the SOX index has fallen 7% — looking ahead to a strong year in 2023, with gains of 17% — while the Dow Jones Industrial Average DJIA, -0.87% has fallen 5% over the past 12 months, the S&P 500 index SPX, -0.70% 9 % fell, and the tech-heavy Nasdaq Composite Index COMP, +0.05% fell 12%.
