America’s ‘Semi’ Advantage

The novel coronavirus is rocket fuel for megatrends that were already under way — working from home … telemedicine … cloud computing … and the Internet of Things.

And semiconductors — LOTS of them — are powering each and every one.

Right now, the U.S. chip industry generates an astounding $164 billion in sales every year, with entire sub-industries growing to serve it.

And that number will only go up as 5G opens a plethora of new technologies, like self-driving cars, remote robotic surgery, smart cities and factories and so much more.

Plus, semiconductors ensure a country’s military remains cutting-edge.

China, meanwhile, is far and away the world’s largest purchaser of semiconductors, buying approximately $160 billion worth as far back as 2016.

Given China’s manufacturing prowess, why can’t it simply copy our products?

Because semiconductors are some of the most complex products on earth. And the R&D needed to make advancements in chip design can take decades.

Beyond designing chips, building a production facility can cost between $10 billion and $15 billion.

The methods used in creating the chips are also highly proprietary, and factories need to produce them quickly with as few defects as possible.

“You’re literally dealing with a process that is one atom at a time. That knowledge base is not something that you can just go and copy overnight,” says Risto Puhakka of VLSI Research, a California firm that tracks the semiconductor industry.

With Chinese semiconductor makers running five to 10 years behind, China’s telecommunications sector will remain hugely reliant on U.S. chips for years to come …

And one U.S. company is already taking advantage of China’s dependency — and strong demand here at home — in a BIG WAY.

It’s a diversified and profitable business that’s endured for 90 years with a sterling record of capital allocation … allowing it to weather many a storm.

The company specializes in analog chips that convert the “real” world into digital signals and vice versa.

They also specialize in microcontrollers, which are tiny computers that perform a single or basic function while using very little power. These devices are found in just about every type of electronic gadget there is, across a host of industries.

And because “connected” cars and automated factories will contain lots of semiconductors, this firm invests hog wild in chips for automotive and industrial applications.

And get this …

90% of their revenues come from shipments outside of the U.S. … in spite of COVID-19 …

And in spite of the trade war …

20% of their revenues come from customers inside China. 

The silver lining is that this stock is still bargain-basement cheap. And its recent 2.3% dividend yield isn’t anything to sneeze at either.

You can access this recommendation in my special report, “American Heroes” … assuming you’re a Wealth Megatrends subscriber.

All the best,

Sean

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