Tech analyst Richard Kramer explains why he's bullish on chip makers right now

Published Mon, Mar 14 202211:07 PM EDT

Tech analyst Richard Kramer remains bullish on the semiconductor sector, despite growing concerns of supply disruptions and rising component costs. Speaking to CNBC Pro Talks last week, Kramer, founder and senior analyst at boutique equity research firm Arete Research, said he continues to like the chip sector for a number of reasons, including sustained demand and ongoing supply chain tightness. Supply chains "For the moment, there is simply no excess capacity in the semi supply chain," Kramer said. "[This] is one reason why, broadly, we look at the semi sector and we are fairly bullish on it. Because it takes a very long time to bring new capacity on stream and there is a backlog of demand that is simply unfulfilled." The analyst highlighted the impact of Japanese gaming giant Sony 's supply chain challenges. The company had planned to ship 14.5 million units of the PlayStation 5 last fiscal year, according to Kramer, but he said the company would be "lucky" to have shipped 11.5 million units instead. "Hopefully those supply chain issues with Advanced Micro Devices and other component suppliers ease for them to reach 35 to 40 million PlayStation 5 in the market by the end of the holiday season this year," he added. As Sony's supply chain disruptions ease, it will also reverberate downstream as game developers seek to produce the most attractive content to tap the larger market, Kramer said. Strong and sustained demand Kramer also believes that demand for chips will remain strong, even as the prices of components rise. It comes amid concerns about the supply of neon in particular, with Wells Fargo recently citing estimates that 90% of semiconductor-grade neon is from the Ukraine. However, Kramer said that a new wave of new technologies — such as artificial intelligence, autonomous vehicles and the metaverse — will support demand, enabling the chipmakers to pass price increases on to customers. He cited Qualcomm and MediaTek as two chipmakers which have already done exactly this. Kramer said these future technologies have not yet taken off due to a lack of semiconductor capacity , hindering the growth plans of companies such as Meta . "A buyer [of chips] like [Meta] is sitting on $57 billion in net cash and is determined to drive towards video and the metaverse — both of which are incredibly datacenter intensive — is not about to give up and say well, we couldn't get the parts," he said. 'Bigger question' scaring investors Kramer is not discounting the potential impact of geopolitical tensions completely, however. Read more Wall Street banks name the most exposed global stocks to the Russia-Ukraine conflict He pointed to former U.S president Donald Trump's ban on the sale of a range of chip components and the use of the Android platform to Chinese technology giant Huawei in 2019, which Kramer says destroyed a lot of [Huawei's] global smartphone business." "Now the bigger question that is scaring semis investors globally is whether China, which controls the supply of some raw material inputs in the semi manufacturing process will, in a tit-for-tat way, restrict the supply of those components that will have downstream impact on the whole semi supply chain," Kramer added.

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Tech analyst Richard Kramer remains bullish on the semiconductor sector, despite growing concerns of supply disruptions and rising component costs.

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Tech analyst Richard Kramer explains why he's bullish on chip makers right now

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