Tech Newsround – Semis and China

Intel – Germany 1. Intel 1.

• Intel has announced that it will nearly double its investments in Germany in return for a 47% increase in subsidy from the German state which to me looks like a win-win.
• Intel is increasing its investments in Germany from €17bn to €30bn while the German government will increase the subsidies from €6.8bn to somewhere around €10bn.
• Subsidies are an essential part of building semiconductor fabs these days as competitiveness is all about the total cost of ownership where the single biggest swing factor is the amount of state subsidies that are received.
• On a straight dollar-for-dollar basis, the German government is now offering a lower subsidy than it was before meaning that jobs created and taxes generated will cost less than before on a relative basis.
• I don’t think that is a big deal for Intel as I suspect that this is not an increase in capex but a relocation of investment that was already planned elsewhere where it would have attracted no subsidy and so, on a net basis, it also come out ahead.
• This in no way decreases my concerns with regard to Intel’s current predicament where it remains under pressure on all fronts.
• Consequently, when I look at its valuation as being not that far off from TSMC or Qualcomm or MediaTek, it continues to remain unattractive.

China – Rally in peril.

• The 2023 China technology recovery looks to be in ever greater peril as a series of tiny stimulus moves by the Chinese state are much less than were expected, meaning that a H2 economic bounce in China increasingly looks like a forlorn hope.
• The PBOC cut the 1-year lending rate by a tiny 10bp reducing the rate to 3.55% from 3.65%.
• The 5-year rate was also cut by the same amount resulting in a barely noticeable change going from 4.3% to 4.2%.
• This was badly received with the market falling which had expected the PBOC to make a greater effort to stimulate the economy.
• The net result is that this move is unlikely to make much of a difference, and so it looks likely that the current weak situation is likely to persist for the rest of the year.
• This is pretty damaging to my theme of a recovery in the Chinese technology sector in 2023 because the companies that will benefit the most are already well-established in their industries.
• This means that the years of expansionary growth are mostly behind them, leaving them dependent on economic activity for a recovery in their fortunes.
• The Chinese technology sector is now one of the most unpopular places to invest in the entire market.
• This is because the geopolitical tension is making almost everyone very hesitant to put money there despite the entire sector being on sale at all-time low prices.
• This means that it will not be until there are signs of life in the Chinese economy that money might be tempted to return and drive the recovery that I have been looking for.
• I was of the opinion that President Xi needed to bring the economy back to good growth to shore up his standing with the Chinese people after Covid Zero, but it appears that he does not share that view.
• Hence, while I remain very sure that there will be a rally in Chinese technology, I have no idea when this will occur.
• Hence, those that are already in probably have a long wait ahead but a rally could come at any moment and with no warning.
• I still hold Alibaba which is trying really hard to boost its share price but with very little effect so far.
• I also hold the Chinese state-owned banks which are some of the cheapest in the world and have the benefit of paying an 8-9% dividend while I wait for them to recover.