Plumbing group Ferguson bets on windfall from new US chip factories

Plumbing and heating equipment supplier Ferguson is betting on a big windfall from new semiconductor factories in the US, as Washington unleashes grants for chipmakers in an effort to counter China’s influence.

The Anglo-American group’s chief executive Kevin Murphy said demand for its products from chipmakers would compensate for declining sales to the residential sector as rising interest rates hit homebuilding activity.

“The onshoring of chip manufacturing . . . those are large projects for us in everything from underground water transmission [to] fire protection,” he said. “There’s a good amount of megaprojects . . . that are good for the country, good for our business.”

Ferguson is a major distributor of heating, ventilation, air conditioning equipment and industrial products and services.

Murphy’s comments underline hopes that a drive to bring semiconductor manufacturing back to the US will provide broad benefits to the national economy.

In recent decades, US companies became increasingly reliant on chipmakers in countries such as Taiwan, before supply chain disruptions during the Covid-19 pandemic led to severe shortages of the vital electronic components used in everything from cars to smartphones.

In July, Congress passed a $280bn Chips and Science Act that included billions in grants for semiconductor manufacturers in the US after concerns mounted over China’s rise as a technology power and its aggression towards Taiwan.

“The projects that we’re engaged in right now are multiyear projects that will provide good business opportunities for us as we go through the next several fiscal years,” said Murphy, whose company is based in the UK but generates about 95 per cent of its revenues in the US. 

Murphy pointed to a plant planned in Ohio by Intel and another in Texas being developed by Samsung as some of the major developments in the US that could benefit his company.

Despite the expected boost from chipmakers, Murphy acknowledged that Ferguson could suffer a hit to income from the residential market, which is responsible for just over half of its revenue.

“As you can imagine, with interest rates rising, there’s concern as to what new house construction might look like,” he said.

But “we think that can be largely offset as we think about the non-residential side of our business”, he added, pointing to US investment in electric car and natural gas facilities as well as new semiconductor plants.

Ferguson, a former FTSE 100 company, has increasingly shifted its focus to the US in recent years.

In 2021, the group spun off its UK business before switching its primary listing from London to the New York Stock Exchange in May this year.

The company reported a jump in revenues during the 12 months to July, buoyed by a string of acquisitions of US companies. Sales grew 25 per cent over the previous year to $28bn, while operating profits rose 44 per cent to $2.8bn.