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2021-09-15

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What the Semiconductor Shortage Has to Do With Corporate Bonds

At first glance, the business of selling chips doesn’t have much in common with the business of sell

What the Semiconductor Shortage Has to Do With Corporate Bonds

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{"i18n":{"language":"en_US"},"data":{"magic":2,"id":882585977,"tweetId":"882585977","gmtCreate":1631707837999,"gmtModify":1676530613910,"author":{"id":4087554958389370,"idStr":"4087554958389370","authorId":4087554958389370,"authorIdStr":"4087554958389370","name":"suetyee","avatar":"https://static.tigerbbs.com/bd19cd2dd51b79773e0fab6bfd14cd60","vip":1,"userType":1,"introduction":"","boolIsFan":false,"boolIsHead":false,"crmLevel":2,"crmLevelSwitch":0,"individualDisplayBadges":[],"fanSize":8,"starInvestorFlag":false},"themes":[],"images":[],"coverImages":[],"extraTitle":"","html":"<html><head></head><body><p>Good</p></body></html>","htmlText":"<html><head></head><body><p>Good</p></body></html>","text":"Good","highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"favoriteSize":0,"link":"https://ttm.financial/post/882585977","repostId":1163801061,"repostType":4,"repost":{"id":"1163801061","pubTimestamp":1631697496,"share":"https://www.laohu8.com/m/news/1163801061?lang=&edition=full","pubTime":"2021-09-15 17:18","market":"us","language":"en","title":"What the Semiconductor Shortage Has to Do With Corporate Bonds","url":"https://stock-news.laohu8.com/highlight/detail?id=1163801061","media":"Bloomberg","summary":"At first glance, the business of selling chips doesn’t have much in common with the business of sell","content":"<p>At first glance, the business of selling chips doesn’t have much in common with the&nbsp;business of selling the debt&nbsp;of blue-chip companies.</p>\n<p>But&nbsp;as the semiconductor industry contends with a massive shortage of components while customers clamor&nbsp;for supply, it’s beginning to more closely&nbsp;resemble the market for U.S. corporate bonds in terms of how these much-desired assets are allocated.</p>\n<p>While it may sometimes seem like the world is swimming in debt, there often aren’t enough new bonds to go around for big investors who are hungry to pad their accounts with something that generates yield. Being allocated new corporate bonds when they are first sold, or issued, is a valuable thing for investors in a world where it’s often a struggle to generate returns. As with&nbsp;the first day ‘pop’ expected in IPOs, bond investors lucky enough to nab a slice of hot new deals can often&nbsp;quickly flip them&nbsp;for an outsized profit.</p>\n<p>Demand has consequently often overwhelmed supply for new bond deals. A $49 billion sale of bonds by Verizon —&nbsp;still the biggest corporate debt deal in history —&nbsp;attracted $100 billion worth of orders, for instance. A $17 billion sale of bonds by Apple Inc. in 2013 received more than&nbsp;$50 billion of orders, while Dell sold $20 billion worth of debt after investors put in orders of more than $80 billion.</p>\n<p>That brings us to one of the notable things about corporate bonds, which is the way in which new ones are allocated. Syndicate bankers who are hired by companies to help sell their debt have described this process as ‘more art than science’, and deciding who gets what in a hot bond deal is often a contentious process.&nbsp;Larger customers of the firm, or those who are more likely to buy bonds in the future (such as the Pimcos and BlackRocks&nbsp;of the world)&nbsp;often get first pick, while smaller firms may be overlooked entirely.</p>\n<p>Because of this, there’s a tendency for these smaller investors to pad their order books —&nbsp;often requesting a lofty amount of debt in the hopes that they might get<i>some</i>.&nbsp;Those left out are likely to grumble that the bonds<i>could</i>have been sold at a much tighter spread to smaller investors, meaning companies would have paid less in funding costs overall.</p>\n<p>The worry now is that there’s a similar dynamic now at play in the semiconductor market and that customers who fear they can’t get as many chips as they need&nbsp;might now be now padding their orders in order to make up for the difference.</p>\n<p>Meanwhile, car companies have already been accusing semiconductor manufacturers of&nbsp;playing favorites&nbsp;and&nbsp;prioritizing deliveries for the consumer electronics companies which provide the bulk of their sales.</p>\n<p><img src=\"https://static.tigerbbs.com/81ab77e13c21fe0bd0205890fc75b407\" tg-width=\"1200\" tg-height=\"675\" width=\"100%\" height=\"auto\"></p>\n<p>Fears over the extent of this ‘double-ordering’ are one reason why semiconductor stocks have moved sideways over the summer even as the companies themselves struggle to catch up with demand.</p>\n<p>On an upcoming episode of Odd Lots, Sanford C.&nbsp;Bernstein analyst&nbsp;Stacy Rasgon, describes the issue:</p>\n<blockquote>\n “The fluctuations tend to magnify as you work from the front of the chain back. And this is a very well-known thing. You see it all the time and the semis are at the back of that supply chain. So even small fluctuations in end demand, like at the customer level, can propagate backwards and have correspondingly larger impacts the farther back you go in the chain and the semis are just at the back. And remember, I think we talked about this last time, but you know that the\n <b>semi companies have to plan in this environment and&nbsp;my opinion at least, is that semiconductor company management teams — their actual visibility into what their end customers are truly doing is precisely zero. They have no idea.</b>They do the best they can. I'm not blaming them. It's not good or bad, right. It just is.\n</blockquote>\n<blockquote>\n And the best companies out there are willing to accept this and deal with it. But their actual visibility is not great — but by the way, companies are trying to do some stuff, right. To get into your second question around potential for double-ordering and stockpiling. And so, so yes, this is&nbsp;a standard kind of behavior, probably not just in semis. I mean, this is normal human behavior. Like when you can't get something that you need, you tend to order more. And again, this is a phenomenon known as&nbsp;double-ordering. I mean, a simple example, let's say you're making widgets and you need, you know, 100 semiconductors, you know, whatever. Right. And your vendor says, okay, I can't, I'll give you 10. I can supply 10 and I'll give you the other 90, you know,&nbsp;maybe&nbsp;in 50 weeks\n <b>.&nbsp;So your next step is to order 1,000 semiconductors from wherever you can hope to cobble them together on the hope that you can build up 100 and then you cancel all the other orders</b>.”\n</blockquote>\n<p>That explains why&nbsp;semiconductor analysts are now so laser-focused on backlogs and lead times. Any pullback in the wait for chips could be caused by double-ordering and subsequent cancellations,&nbsp;as much as by a genuine normalization in the supply-demand imbalance.</p>\n<p>The danger is that&nbsp;double-ordering becomes so common that it obscures the real state of customer demand and makes it much harder for semiconductor manufacturers to respond to it. In other words, it leads to wilder swings in the supply chain and even more uncertainty.</p>\n<p>So far there aren’t any sure signs that double-ordering is happening on&nbsp;a large-scale.&nbsp;The latest available data from Susquehanna Financial Group&nbsp;shows the gap between ordering a semiconductor and taking delivery of it continues to widen and now stands at at more than 20 weeks. That’s compared to a paltry 12 weeks at the start of 2020.</p>\n<p>Meanwhile, chipmakers like Dell have been pushing back against the idea. “If you were going to see double-ordering, you would also see cancellations coming through the backlog. We're just not seeing that,” Michael Dell, CEO and Chairman of the company, said in June. Even if companies have been double-ordering, there’s little evidence that they’re getting the amount of chips they need as&nbsp;carmakers keep cutting back on production.</p>\n<p>But the process of allocating chips is becoming more inefficient, just like the process of allocating corporate bonds. Like syndicate bankers, semiconductor companies will have to practice the dark arts of allocation —&nbsp;trying to gauge which orders are real and which are not, and which clients are the most deserving.</p>\n<p></p>","source":"lsy1584095487587","collect":0,"html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>What the Semiconductor Shortage Has to Do With Corporate Bonds</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nWhat the Semiconductor Shortage Has to Do With Corporate Bonds\n</h2>\n\n<h4 class=\"meta\">\n\n\n2021-09-15 17:18 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://www.bloomberg.com/news/articles/2021-09-15/what-the-semiconductor-shortage-has-to-do-with-corporate-bonds?srnd=markets-vp><strong>Bloomberg</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>At first glance, the business of selling chips doesn’t have much in common with the business of selling the debt of blue-chip companies.\nBut as the semiconductor industry contends with a massive ...</p>\n\n<a href=\"https://www.bloomberg.com/news/articles/2021-09-15/what-the-semiconductor-shortage-has-to-do-with-corporate-bonds?srnd=markets-vp\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{".DJI":"道琼斯",".IXIC":"NASDAQ Composite",".SPX":"S&P 500 Index"},"source_url":"https://www.bloomberg.com/news/articles/2021-09-15/what-the-semiconductor-shortage-has-to-do-with-corporate-bonds?srnd=markets-vp","is_english":true,"share_image_url":"https://static.laohu8.com/e9f99090a1c2ed51c021029395664489","article_id":"1163801061","content_text":"At first glance, the business of selling chips doesn’t have much in common with the business of selling the debt of blue-chip companies.\nBut as the semiconductor industry contends with a massive shortage of components while customers clamor for supply, it’s beginning to more closely resemble the market for U.S. corporate bonds in terms of how these much-desired assets are allocated.\nWhile it may sometimes seem like the world is swimming in debt, there often aren’t enough new bonds to go around for big investors who are hungry to pad their accounts with something that generates yield. Being allocated new corporate bonds when they are first sold, or issued, is a valuable thing for investors in a world where it’s often a struggle to generate returns. As with the first day ‘pop’ expected in IPOs, bond investors lucky enough to nab a slice of hot new deals can often quickly flip them for an outsized profit.\nDemand has consequently often overwhelmed supply for new bond deals. A $49 billion sale of bonds by Verizon — still the biggest corporate debt deal in history — attracted $100 billion worth of orders, for instance. A $17 billion sale of bonds by Apple Inc. in 2013 received more than $50 billion of orders, while Dell sold $20 billion worth of debt after investors put in orders of more than $80 billion.\nThat brings us to one of the notable things about corporate bonds, which is the way in which new ones are allocated. Syndicate bankers who are hired by companies to help sell their debt have described this process as ‘more art than science’, and deciding who gets what in a hot bond deal is often a contentious process. Larger customers of the firm, or those who are more likely to buy bonds in the future (such as the Pimcos and BlackRocks of the world) often get first pick, while smaller firms may be overlooked entirely.\nBecause of this, there’s a tendency for these smaller investors to pad their order books — often requesting a lofty amount of debt in the hopes that they might getsome. Those left out are likely to grumble that the bondscouldhave been sold at a much tighter spread to smaller investors, meaning companies would have paid less in funding costs overall.\nThe worry now is that there’s a similar dynamic now at play in the semiconductor market and that customers who fear they can’t get as many chips as they need might now be now padding their orders in order to make up for the difference.\nMeanwhile, car companies have already been accusing semiconductor manufacturers of playing favorites and prioritizing deliveries for the consumer electronics companies which provide the bulk of their sales.\n\nFears over the extent of this ‘double-ordering’ are one reason why semiconductor stocks have moved sideways over the summer even as the companies themselves struggle to catch up with demand.\nOn an upcoming episode of Odd Lots, Sanford C. Bernstein analyst Stacy Rasgon, describes the issue:\n\n “The fluctuations tend to magnify as you work from the front of the chain back. And this is a very well-known thing. You see it all the time and the semis are at the back of that supply chain. So even small fluctuations in end demand, like at the customer level, can propagate backwards and have correspondingly larger impacts the farther back you go in the chain and the semis are just at the back. And remember, I think we talked about this last time, but you know that the\n semi companies have to plan in this environment and my opinion at least, is that semiconductor company management teams — their actual visibility into what their end customers are truly doing is precisely zero. They have no idea.They do the best they can. I'm not blaming them. It's not good or bad, right. It just is.\n\n\n And the best companies out there are willing to accept this and deal with it. But their actual visibility is not great — but by the way, companies are trying to do some stuff, right. To get into your second question around potential for double-ordering and stockpiling. And so, so yes, this is a standard kind of behavior, probably not just in semis. I mean, this is normal human behavior. Like when you can't get something that you need, you tend to order more. And again, this is a phenomenon known as double-ordering. I mean, a simple example, let's say you're making widgets and you need, you know, 100 semiconductors, you know, whatever. Right. And your vendor says, okay, I can't, I'll give you 10. I can supply 10 and I'll give you the other 90, you know, maybe in 50 weeks\n . So your next step is to order 1,000 semiconductors from wherever you can hope to cobble them together on the hope that you can build up 100 and then you cancel all the other orders.”\n\nThat explains why semiconductor analysts are now so laser-focused on backlogs and lead times. Any pullback in the wait for chips could be caused by double-ordering and subsequent cancellations, as much as by a genuine normalization in the supply-demand imbalance.\nThe danger is that double-ordering becomes so common that it obscures the real state of customer demand and makes it much harder for semiconductor manufacturers to respond to it. In other words, it leads to wilder swings in the supply chain and even more uncertainty.\nSo far there aren’t any sure signs that double-ordering is happening on a large-scale. The latest available data from Susquehanna Financial Group shows the gap between ordering a semiconductor and taking delivery of it continues to widen and now stands at at more than 20 weeks. That’s compared to a paltry 12 weeks at the start of 2020.\nMeanwhile, chipmakers like Dell have been pushing back against the idea. “If you were going to see double-ordering, you would also see cancellations coming through the backlog. We're just not seeing that,” Michael Dell, CEO and Chairman of the company, said in June. Even if companies have been double-ordering, there’s little evidence that they’re getting the amount of chips they need as carmakers keep cutting back on production.\nBut the process of allocating chips is becoming more inefficient, just like the process of allocating corporate bonds. Like syndicate bankers, semiconductor companies will have to practice the dark arts of allocation — trying to gauge which orders are real and which are not, and which clients are the most deserving.","news_type":1},"isVote":1,"tweetType":1,"viewCount":391,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"andRepostAutoSelectedFlag":false,"upFlag":false,"length":4,"xxTargetLangEnum":"ORIG"},"commentList":[],"hasMoreComment":false,"orderType":2}