With supply shortages disrupting worldwide commerce, companies like Ford aren’t waiting around. While most tech companies are almost completely out of microchips and tech customers are struggling to get their hands on desired products, Ford is implementing a plan to make its own semiconductors.
Computer chip shortages have negatively affected many industries, including the automotive industry.
For example, supply shortages of semiconductors continue to disrupt the production plans of many prominent companies, including General Motors, which recently announced they would not be offering the heated seat option in many of their 2022 models to preserve their supply of semiconductors for more critical components.
But now, in response to the shortage, Ford has announced a partnership with US-based chip maker Global Foundries to produce its own semiconductors.
“It’s critical that we create new ways of working with suppliers to give Ford—and America—greater independence in delivering the technologies and features our customers will most value,” said Ford CEO Jim Farley. “This agreement is just the beginning, and a key part of our plan to vertically integrate key technologies and capabilities that will differentiate Ford far into the future.”
The semiconductor shortage has scuttled the output of millions of planned vehicles industrywide this year. Some car executives have said they are taking steps to get a better handle on their chip supplies, a critical piece of the supply chain into which they have had little visibility.
Automotive companies scaled back their purchases during the pandemic due to lack of demand for automobiles, which put them at the back of the line behind other industries that continued to purchase semiconductors during the pandemic.
So, what is causing semiconductor supply shortages?
Well, in addition to the now infamous supply bottlenecks, closures of Chinese ports that have affected worldwide maritime transportation, and lack of workers to transport the chips, natural disasters have also played a key role in the shortages.
Last year, there was a fire at a major supplier in Japan, brutal winter storms in Texas—home of Intel— and a drought in Taiwan. Semiconductor chips require copious amounts of water during production, and each of these disasters became a limiting factor.
Semiconductor companies have made significant investments in new manufacturing plants to keep up with demand, which has left investors with opportunities to profit.
There are higher profit margins across the industry as companies continue to operate at maximum capacity and the ability to raise prices.
With increased production comes investment opportunities.
As of this writing, Ford’s stock hasn’t seen much movement and Global Foundries is up slightly.
Our Money and Market Green Zone rating isn’t high for Global Foundries, and we are neutral on Ford stock, which means we expect the stock to perform in line with the market over the next 12 months.
However, we do also have a semiconductor stock on which we are “strong bullish.”
As semiconductor companies continue to increase production, they will need equipment to make semiconductors. One such company that stands to benefit is Nova Measuring instruments…and if you took our advice back in March, you would know this.
At the time, Nova was selling at under $90 a share, and as of today, Nova shares are over $130.
In March, we wrote that we “expect the stock to outperform the broader market by three times in the next 12 months.”
And we continue to be optimistic about Nova’s prospects and continue to be “strongly bullish” about Nova in our Green Zone rating for the stock.
And, as Money and Markets research analyst Mathew Clark wrote in March, “NVMI is a different way to buy into the future growth of the semiconductor sector, and it should provide market-tripling gains in the coming months.”
The good news for investors is that we still feel that way today.