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Industry roundup: 27 January

US to address semiconductor shortage

The US is planning action to address the shortage of computer chips, with the increasing imbalance of supply and demand raising the prospect of factory shutdowns later this year.

According to the Commerce Department, US supplies have fallen to alarmingly low levels. US companies dependent on semiconductors for their manufacturing processes are down to less than five days of inventory, against 40 days in 2019, according to a department survey of 150 companies. Demand for chips, the department reported, was up 17% last year from 2019 and those used in the production of automobiles and medical devices are especially scarce.

The Commerce Department survey found that it can take companies twice as long – and in some cases up to a year – to source certain in-demand chips. Survey respondents also said they did not see the supply-demand mismatch in the industry dissipating in the first half of 2022.

The shortages have affected larger legacy chips, which are necessary for auto production, as well as the most advanced chips required to power technologies like artificial intelligence.

Commerce Secretary Gina Raimondo said she had spent “an enormous amount of time” discussing the shortage to chief executives, some of whom had resorted to hunting worldwide to source the small number of chips crucial to their supply chains.

She added that the survey also revealed the worrying extent to which the US relies on Taiwan for the most advanced chips. Taiwan Semiconductor Manufacturing Company has become the contract manufacturer of choice for many companies, which often design their chips in the US but depend on Asia to manufacture them. A further finding had been the unusually high prices for semiconductors sold through brokers and the Commerce Department plans to investigate these practices.

Citing the report, the Biden administration is calling on Congress to pass stalled legislation that would provide US$52 billion for domestic semiconductor production. “The semiconductor supply chain remains fragile, and it is essential that Congress pass chips funding as soon as possible,” said Raimondo.

“With sky-rocketing demand and full utilisation of existing manufacturing facilities, it’s clear the only solution to solve this crisis in the long-term is to rebuild our domestic manufacturing capabilities.”

The shortage of chips and its impact on car producers was a major contributor to US consumer prices rising 7% year-on-year in December – the highest rate in four decades. In November 2021 the average price of a used vehicle was $29,011, a 39% increase on 12 months earlier.

Democratic leaders of the House of Representatives this week unveiled a bill aimed at ramping up US chip manufacturing and improving America’s ability to compete with the world’s major supplier, China.

The America Creating Opportunities for Manufacturing, Pre-Eminence in Technology and Economic Strength Act of 2022 – aka the America Competes Act – earmarks US$52 billion for the US semiconductor industry and a further US$45 billion to strengthen America’s supply chain to produce goods domestically and eliminate shortages.

However, it will take several years before any new facilities can be built and begin production. Intel, which has just announced a US$20 billion investment for a new facility in Ohio, plans to begin building two new factories later this year but the plants will not start operations until 2025.

“We’re in an all-out race for the jobs of the future and to protect our country’s global technological edge,” said the Senate majority leader Chuck Schumer. “It’s time to invest in America's workers and keep our tech economy on the cutting edge.

“The stakes we face are enormous: If we do not invest now in researching, developing and manufacturing the technologies of the future, we risk falling behind China and other global competitors, endangering US jobs, intellectual property and national security.”

Other proposals under the America Competes Act – which could precede the passing of a US manufacturing and supply chain bill into law – include: funding to address social and economic inequality, climate change, and immigration; loosening restrictions on the eligibility of those coming to the US to obtain a green card and creating a new green card for entrepreneurs; and authorising US$600 million a year to construct manufacturing facilities to lessen US reliance on solar components made in Xinjiang.

Refinitiv, Olea and Seabridge TFX join forces on trade finance

Refinitiv, the financial markets data and infrastructure provider, is joining forces with the supply chain finance platform Olea and digital financing marketplace Seabridge TFX to “transform trade finance by offering a range of short-term trade finance solutions” for suppliers dealing with large buyers.

The trio have entered into a memorandum of understanding (MoU) to form a partnership to jointly develop, market, and launch distinctive working capital propositions for the greater good.

A release announcing the partnership notes that many suppliers may have limited access to trade finance, which could potentially constrain their growth and may also want a diversified portfolio on their funding sources. A recent report by the Asian Development Bank (ADB) highlights that 40% of trade finance applications rejected by banks were from small and medium enterprises (SMEs).

The release adds that the three organisations bring their respective expertise to thecollaboration: Olea brings its robust risk management practices, structuring and distribution capabilities to tap alternative liquidity pool, Refinitiv contributes through its access to supply chain communities, and Seabridge TFX offers technology to manage risks leveraging real-time information and alternative data feeds from Refinitiv that cover the entire trade cycle in addition to the close proximate access to suppliers.

The collaboration “is expected to be a win-win for participants across the ecosystem, for both investors and suppliers alike. Investors will get robust support in risk assessment and management while suppliers will obtain competitive and diversified financing options. The partnership will be achieved through analytic-led risk management and end-to-end digitised solutions delivery”.

Amelia Ng, CEO of Olea commented: “Olea supports sustainable trade finance. The pandemic has caused supply chain disruptions globally and made it increasingly challenging for companies to obtain financing. Olea believes in technology as a proven path to reshaping how supply chains are financed. This partnership aims to deliver supply chain solutions with renewed vigour."

Neil Pabari, Global Head of Focused Markets at the London Stock Exchange Group (LSEG), which acquired Refinitiv from the Thomson Reuters/Blackstone consortium in 2019 said: “It is clear that in the supply chain, advances in technology have helped trade to continue despite a number of disruptive challenges in recent years. By leveraging Refinitiv’s scale, platform and data assets, our ambition through this partnership is to help the ecosystem digitise as we believe it will help a wider group of buyers and sellers reduce cost, enhance efficiency and enable greater access to alternative sources of financing.”

Bhushan Rao, CEO/Founder of Seabridge TFX added: “The aim is to drive transparency and efficiency in trade and supply chain financing for investors through risk assessment and management solutions such as workflow digitisation and data analytics, with the ultimate objective of benefitting SMEs with access to timely and cost-competitive financing.”

LiquidX completes first digital securitisation facility

LiquidX, the global trade finance marketplace for working capital, trade finance and trade credit insurance has completed the first securitisation facility on its platform within weeks of launching an automated digital distribution tool for trade finance assets.

The transaction involved LiquidX sourcing and facilitating a US$125 million accounts receivable finance programme for an unnamed company in the technology, media and telecom (TMT) sector. The structure achieved true sale recognition through the securitisation of the US$20 billion company’s portfolio of over 3,000 customers. German bank Nord/LB acted as the agent and arranger, and LiquidX served as reporting agent.

“We are pleased to facilitate this transaction, which improves our client’s liquidity position and advances our vision of building the most complete digital solution for trade financing,” says Jim Toffey, CEO of LiquidX.

The automated reporting infrastructure on the LiquidX platform lowers the cost of administratively complex and expensive transactions for both corporations and financial institutions. The LiquidX platform ingests files in any format and uses machine learning and distributed ledger technology (DLT) to automate and validate working capital assets throughout their lifecycle.

Participants are connected in one digital environment, providing transparent visibility, faster transaction processing, and comprehensive data gathering. Banks and asset managers can thereby increase their trade finance volumes while eliminating manual processes that are a source of delay, inefficiency, fraud risk, and error, the company says.

HSBC AM launches semiconductor ETF

HSBC Asset Management has launched a semiconductor exchange traded fund (ETF) that offers investors exposure to 80 global semiconductor companies. According to the ETF Stream website, the HSBC Nasdaq Global Semiconductor UCITS ETF (HNSC) is listed on the London Stock Exchange (LSE) with a total expense ratio (TER) of 0.35% and further listings across Europe are expected over the coming weeks.

HNSC tracks the Nasdaq Global Semiconductor index, comprising the 80 world’s largest global semiconductor companies, which includes those that supply semiconductors to the automotive wireless communications, computing and consumer sectors.

HSBC AM’s global head of ETF and indexing sales, Olga De Tapia, told the website: “Semiconductors are key for the future of many technology-based industries and are also expected to play an important role in the transition to net-zero through enabling clean technologies. We feel that this addition to our tech thematic product suite captures a long running secular trend which sits at the heart of the digital revolution”

Cameron Lilja, Nasdaq vice president and head of index research and development, added: “Semiconductors are essential to many aspects of modern society with increasing importance for rapidly evolving technologies.”

ETF Stream notes that semiconductor ETFs have proved a popular trade since the first, the VanEck Vectors Semiconductor UCITS ETF, which has attracted US$798 million to date, launched in December 2020. This has since been joined by offerings from BlackRock and Lyxor, respectively the iShares MSCI Global Semiconductors UCITS ETF and the Lyxor MSCI Semiconductors ESG Filtered UCITS ETF.

Klarna, Santander offerings expand BNPL market

Swedish fintech Klarna, which has pioneered the buy now, pay later (BNPL) market for consumers since its formation in 2005, this week launches a physical payment card in the UK. The card enables users to defer payment on purchases for up to 30 days without incurring interest or late payment charges in line with the “Pay in 30” product that has made its name

In addition to allowing customers to use the Klarna card for BNPL in shops, it can also be used to pay at online shops not partnered with the company, while other benefits include cheap foreign exchange rates when spending abroad and integration into Apply Pay and Google Pay.

The launch will intensify competition with Klarna’s rivals, who range from American Express to UK fintech start-up Monzo, which last September launched its own BNPL product with a £3,000 (US$4,025) limit. Users can use BNPL to buy items online with as little as their email address and then either split the payment into instalments over time or defer payment for a month or more.

Banks to have noted the growth of the BNPL market, which has accelerated with the onset of the Covid-19 pandemic, include Spain’s Santander, which has announced plans to launch its own service in Europe this year in response to the fintech challenge.

Santander plans to roll out Zinia, an app that allows consumers to split their purchases over monthly interest-free instalments, across its markets this year, beginning with the Netherlands. The bank says that the technology supporting Zinia has been operational in Germany for the past year, where it has already accrued more than two million customers.

Ezequiel Szafir, CEO of Santander’s Openbank online banking division, said the bank aims to “become a leader in the BNPL market” and cited “the security and trust provided by a large financial group” as a key factor differentiating Santander’s offering from other BNPL products.

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