Orders uncertainty seen weighing on local technology sector

PETALING JAYA: AmInvestment Bank Research is maintaining its neutral outlook on the technology sector for the next 12 months, due to near-term uncertainty in orders clouding the outlook of some semiconductor companies, arising from the long-standing technology and trade spat between the US and China.

In a sector update note, the research house said moderate growth is expected in global semiconductor sales in 2020 and 2021, increasing by 5.9% and 6.3% respectively supported by the Semiconductor Industry Association’s (SIA) data that sales began to show a positive trend of recovery from April 2019 onwards, reaching US$36.6 billion sales in October 2019.

AmInvestment Research noted that although phase one of the US-China trade deal has been clinched, it is still cautious about the impact of the trade war, as there may be more phased deals and negotiations might hit a pause with the US bracing for its presidential election in November 2020.

“As a result of the trade war, Chinese companies have been forced to reconsider their supply chain and reduce their dependency on US suppliers by shifting to local sources.

“As an example, Malaysian Pacific Industries’ Carsem Suzhou plant has seen stronger demand of orders from Chinese customers who have turned to locally-based OSAT (outsourced assembly and test) players to reduce supply chain risk,” it said.

In terms of global smartphone sales, Gartner’s September 2019 report forecast that the global smartphone market is expected to recover and grow by 2.9% in 2020 as a result of 5G adoption, after a 3.2% global decline in shipment of devices in 2019.

AmInvestment Research said it believes some users are reportedly holding onto their phones longer given the limited attraction of new technology, but also could be holding back purchases in anticipation of 5G adoption in upcoming models.

“With Inari Amertron’s exposure to the radio frequency (RF) market, the group will benefit from the transition to 5G due to increasing RF chip content per phone with every new 5G model produced, which will help to cushion any declines in overall smartphone sales,” it said.

Meanwhile, the global auto sector is forecast to see no revenue growth in 2020 and expectations of this will extend in 2021, with all regions anticipated to face volume weakness except for China which might see a modest rebound after 2021.

“ Due to the subdued global auto outlook, demand for the automotive semiconductor industry might also be muted,” the research house said.

AmInvestment Research’s top pick for the sector is Malaysian Pacific Industries Bhd due to its new product portfolio that focuses on the higher-margin specialised market, leading market position in the ultra-thin micro leadframe package and increased R&D in micro-electromechanical systems sensors and the strong net cash position of RM761 million as at Sept 30 that allows for the group to look for meaningful M&A opportunities.

“Despite global uncertainties, the group’s automotive segment which contributes 32% of group revenue, is strengthening and its Carsem pipeline remains intact with around US$55 million capex earmarked for machinery in its Suzhou plant due to higher demand from Chinese customers, while the remainder of its capex will be utilised to enhance its Ipoh plant’s capabilities,” it said.

The global smartphone market is expected to recover and grow by 2.9% in 2020 as a result of 5G adoption. – REUTERSPIX

source https://www.thesundaily.my/business/orders-uncertainty-seen-weighing-on-local-technology-sector-ID1849965