Wednesday, January 12, 2022

Supply problems: semiconductors vs. retail

This chart compares the two sectors that have arguably been the most affected by supply chain issues: chipmakers and retail.

The Philadelphia Semiconductor Index vs the S&P 500 Retailing Index (logarithmic scale)

Chipmakers are dealing with rising commodity costs, and lagging lead times (the amount of time between when a semiconductor is ordered versus when it gets delivered.) Retailers, on the other hand, have to face higher margin costs and increasing wages. While stimulus, and therefore strong spending, has been offsetting those issues, government assistance will fade and the supply chain issues are likely to persist. That leaves retailers at a disadvantage. Chipmakers though, have a better growth case -- being used for everything from electric vehicles to the data centers that will one day power the metaverse. Add on longer-term plans to increase domestic production capacity, and it explains the outperformance.

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