Tech investor sentiment was rattled after Iran targeted Ras Laffan, an industrial city in Qatar that houses critical oil infrastructure and natural gas export facilities. As concerns about supply chains pivotal to the tech industry grew, tech stocks in Asia took a beating during the day’s trading on Thursday.
Samsung Electronics stock slipped by 1.8% while SK Hynix slid by 2.23%. Seoul Semiconductor saw its shares decline by 2.53%. In Japan, the situation wasn’t any different. Advantest slid by more than 4% and Tokyo Electron declined by 1.99%. In China, MiniMax slipped by 10% while Knowledge Atlas recorded an 8% drop in the price of its shares.
Analysts say these stock price declines have nothing to do with the fundamentals of the companies affected. Instead, they have everything to do with the ongoing conflict in the Middle East that has caused oil prices to spike and put critical supply chains at risk.
There are fears that the war will drive up inflation around the world, but of greater concern are the second-order impacts on the supply chains that the semiconductor industry depends on.
For example, the attacks on Qatar cut off a key source of helium that semiconductor manufacturers depend on when making chips. Qatar produces more than 33% of global helium annually, and Asian countries like Taiwan, South Korea and Japan that depend on helium from this country would require a lengthy and costly process to source helium supplies from other producers.
Market tightness stemming from the disruptions in Qatar is causing prices to rise, and those price increases could make semiconductor products more expensive for firms that require them. Additionally, as supply tightness persists, the availability of helium could drastically reduce and force manufacturers to halt production.
These risks are front and center in the minds of investors, and the slump in Asian tech stocks is testament to this reality.
How long the conflict lasts will be instrumental in how quickly normalcy returns to supply chains. Even if the conflict ends, it will take a lot longer for needed supplies like helium to become available at levels that were the norm before the war broke out.
This is because the shocks caused will need time to be addressed. For example, damaged production or export facilities have to first be restored and shipping logistics will also take time to regain normalcy. It also takes time for a shipment to transit from the production hub to a client’s facility.
It is during times like these that the operational capabilities of tech giants like Taiwan Semiconductor Manufacturing Company Ltd. (NYSE: TSM) will be put to the ultimate test.
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