As long term investors, it is important for us to identify long-term macro-trends as these dictate the direction the global economy would move in for the long-term.
An aging and shrinking labour force: causes and a solution?
According to macrotrends.net, birth rates are falling, death rates are rising and life expectancy is increasing.
All these factors point to a single macro-trend — an ageing and shrinking workforce.
Something that the semiconductor manufacturing industry stand to gain from.
Chart of global life expectancy from birth. Source: marcotrends.net
Chart of global deaths per 1000 people. Source: macrotrends.net
Chart of global births per 1000 people. Source: macrotrends.net
Fewer people entering the world, would lead to fewer people entering the labourforce in the future. Although some argue that people are retiring later (supported by pensions at a glance 2021: OECD and G20 Indicators), how long can someone really work productively?
The combination of the 2 factors above would force companies to turn to automation to maintain their productivity and competitiveness.
The increase in demand for automation would likewise lead to an increase in demand for digital computers that are used to automate processes — which use semiconductor chips.
This translates to higher revenues for semiconductor manufacturers in the foreseeable future as there are little alternatives to semiconductor chips.
Although profitability, efficency and management plans would vary across different firms.
Threats to semiconductor manufacturers?
A fundemental problem with creating more powerful semiconductor chips would be that adding more transistors to modern chips would serve to increase costs per unit of computational power. This is from the added complexity of the chip and in the manufacturing process as transistors are approaching their theoretical size limit.
Source: Marvel 2020 Investor Day Slide 43
In the future, there could be commercial viability of technologies that compete directly with semiconductor chips such as analogue and quantum computing. Semiconductor manufacturers should either diversify or innovate to maintain relevance.
Actionable steps
Individual companies would have different risks unique to their specific circumstances that should be properly analysed before making an investment. A lower-risk option to capitalise on this macro-trend would be to consider sector-specific ETFs such as $iShares Semiconductor ETF(SOXX)$ , $Invesco PHLX Semiconductor ETF(SOXQ)$ and $VanEck Vectors Semiconductor ETF(SMH)$ to minimise company-specific risks.
$Marvell Technology(MRVL)$ $Taiwan Semiconductor Manufacturing(TSM)$
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