By G. Sharmila
In July, worldwide semiconductor sales decreased 0.9% year-on-year to US$27.9 billion, bringing to a stop the industry’s 26-month growth run. In the region, sales growth was led by China, followed by all others in the Asia Pacific. How will Malaysian players fare going forward?
Sector background: According to the Semiconductor Industry Association (SIA), global semiconductor sales slowed somewhat between June and August due to softening demand, normal market cyclicality and currency devaluation in some regional markets.
As pointed out by MIDF Research in a Sept 7 report, despite slower sales, it is still on-par with the 2014 monthly average sales of US$27.8 billion (RM117.4 billion). The SIA also said that further investment in areas related to the Internet of Things (IoT) and other cutting-edge, semiconductor-driven innovations would be a key factor to the well-being of the industry.
The IoT is the network of physical objects or “things” embedded with electronics, software, sensors, and connectivity to enable objects to collect and exchange data.
Commenting on the performance of Malaysian semiconductor companies, MIDF said: “Despite experiencing some slowdown in global semiconductor sales (GSS) in recent months, export of semiconductor products from Malaysia remains healthy.
For the month of July 2015, semiconductor exports amounted to RM11.5 billion, an increase of +12.3% year-on-year (y-o-y). For the period of January to July 2015, the exports have increased by +8.8% y-o-y to RM77.4 billion as compared to only RM71.1 billion in 2014. MIDF attributed the outperformance, compared to GSS, to a focus on niche growing segments, especially those related to the IoT, as well as favourable foreign currency exchange.
What analysts think: According to MIDF Research, the demand for communication devices will continue to be supported by low-to-middle class consumers seeking to stay connected and to be at the forefront of the latest cutting-edge technological product offerings.
“This will be in favour of electronic companies which are able to offer end-products at competitive prices, thus, advocating a high volume business strategy. Semiconductor companies that position themselves in the right production value chain will, in turn, benefit from the high volume orders. In the near term, new smartphone line-ups this second half of 2015 are going to further excite the industry,” the research house opined.
MIDF also said that given the high correlation between the semiconductor industry and global economy, it is expecting uninterrupted growth in the semiconductor industry for as long as the global economy continues to grow. It reiterated its positive stance on the semiconductor sector. The research house’s top semiconductor picks are Unisem and Globetronics.
TA Securities was similarly positive on the sector in a report dated Sept 7, with an “overweight” rating on the sector.
“In line with industry data, local companies reported weaknesses within certain end-market segments – namely industrial and PC. However, despite recent reports, overall demand remains strong within the smartphone market – which makes up approximately 30% to 50% of sales for companies under our coverage.
“In the second half, this will be driven by the anticipated release of a major smartphone. Also, benefitting local companies, the continued weakening of the ringgit will add positively to earnings in the coming quarters,” it said.
TA Securities maintained “buy” ratings on Inari Amertron, Unisem and MPI.
However, an analyst from a bank-backed research house, who declined to be named, said that some local players are already expecting flat third-quarter growth in US dollar terms due to the decline in smartphone sales in China. That said, the analyst believes that demand from the US will partly cushion the impact.
On Aug 20, Gartner Inc noted that worldwide smartphone sales recorded the slowest growth rate since 2013 in the second quarter of 2015 (2Q15).
According to the research firm, China is the biggest country for smartphone sales, representing 30% of total sales of smartphones in 2Q15. Its poor performance negatively affected the performance of the mobile phone market in the second quarter, the research firm said.
The analyst also noted that the latest SIA data is a warning sign of a potential slowdown in the sector. “Most Malaysian semiconductor players are outsource assembly and testing players. If the current slowdown continues to be a downturn for the whole sector, we will see the impact within three to six months,” he said.
Asked whether China-based semiconductor players could be a threat to their Malaysian counterparts, he said that they could be, due to the recent depreciation of the yuan making them more competitive.
“However, due to the weakening of the ringgit and with some our players having secured big contracts, the impact of the China players will not be as great as compared to a few years ago,” he said.
Peer comparison:
StockStalk: With the US dollar continuing to remain strong and demand for smartphones and other IoT devices set to strengthen in future, the outlook for semiconductor players in Malaysia certainly seems bright.
The only threat that we are concerned about is the slowdown in China, which may lead to slowing demand for smartphones in that country, thus hurting local players who are dependent on the smartphone market.
We would advise that investors weigh their options very carefully before jumping to invest in any particular semiconductor company, given that there could be a slowdown in the sector within the next three to six months. However, investors with a long-term view may benefit from investing in this sector, as the growth potential remains.
________________________________________________________________________
Important Note and Disclaimer: This article should NOT be taken as a cue to either buy or sell the stock. The intention is to highlight the key factors you might want to think about before plunging in or scrambling out. While KINIBIZ makes every endeavour to ensure facts are right and opinion is fair, no liability can be assumed for anyone relying on this information. In other words let the buyer (or seller) beware — a reflection of Bursa Malaysia, we say.
You must be logged in to post a comment.