British voters’ decision to exit the European Union (termed Brexit) took the world by surprise, wiping nearly $2 trillion from the global markets on the day the referendum results were announced. The British pound fell to a 30-year low against the US Dollar on the day. Though most global markets have recovered a bit from the lows witnessed on June 23rd and 24th, the uncertainty around how the whole situation plays out continues to cast a shadow on the global markets. The Brexit process by law will take two years to transpire, once the UK formally notifies the EU,creating a lot of economic, financial and political uncertainty about the British economy in the interim.

The PHLX Semiconductor Index fell over 9% in the two days following Brexit vote, though the index has recovered by approximately 5% in the subsequent three days. We believe that the Brexit will not have a significant impact on the semiconductor industry, and here’s why:

•Overall, the markets for semiconductors and semiconductor equipment are open, as most of the market participants are bound by the WTO Information Technology Agreement. Thus, most semiconductors and semiconductor manufacturing equipment enter most markets duty-free.

•The majority of semiconductors are manufactured in Taiwan, South Korea and Singapore, gieven the significance of Samsung and the foundry TSMC.

•According to the International Trade Administration, the U.S. accounts for 50% of semiconductor sales worldwide.

•China is the biggest consumer of semiconductors, accounting for over 50% of the global semiconductor demand. Of course, electronics manufacturers from around the work use Asian ODMs. Europe accounts for less than 10%, and we believe that Britain’s share in that is very minuscule.

•Germany, which is the 3rd largest semiconductor export market for the U.S, is the only European country that features in the 2015-2016 Top 10 markets for U.S. semiconductor exports, according to a recent report by the International Trade Administration.

By: DocMemory
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