Broad product range is key

Good-yielding product: Unisem is also involved in wafer level chip-scale packaging, a high margin product, for customers in the smartphone, PC, and automotive segments.

Some technology companies are unaffected by drop in global smartphone sales

NOT all technology companies in the country are negatively impacted by the declining sales of smartphones.

Having a broader range of product mix for different customer segments and serving a growing automotive sector are among the reasons why some technology companies performed better than others.

For example, Malaysian Pacific Industries Bhd (MPI) and Unisem (M) Bhd performed within the expectations of analysts in the first quarter 2016 because they have a diverse mix of good yielding products for the smartphone, tablet, and automotive customers.

According to Kenanga research reports, MPI manufactures high-value micro leadframe packaging (MLP) products for the smartphone, tablet, and automotive customers.

MLP products are small and thin in footprint and are also light.

Unisem is also involved in wafer level chip-scale packaging, a high margin product, for customers in the smartphone, PC, and automotive segments.

Wafer Level Chip Scale Packaging (WLCSP) solutions are in high demand because they provide significant package footprint reductions, lower cost, and improved electrical performance.

The Kenanga report on Unisem says that its first quarter revenue showed an increase by 14% with stellar sales recorded from all segments.

“In particular, the PC and automotive rebounded from a low base in the first quarter 2015 with both registering steepest growth of 21%,” the report adds.

Penang-based semiconductor test equipment manufacturers such as MMS Ventures Bhd, Pentamaster Corporation, and Elsoft Research Bhd, for example, are expected to do well in the second quarter due to the demand for test equipment to check ICs and LED modules used in the automotive industries.

MMS Ventures managing director T.K. Sia says in an interview that the contribution of the automotive segment was expected to generate about 35% of the group’s revenue in 2016, compared with 25% a year ago.

“MMS Ventures expects to deliver test equipment for the automotive and smart device industries with an approximate market value of RM16mil in the second quarter 2016 compare to RM11mil from last year’s same period.

“The test equipment for automotive lighting system is about 35% of the RM16mil delivery,” he says.

Pentamaster Corp executive chairman C.B. Chuah says the group would deliver approximately RM40mil of test equipment in the second quarter of 2016.

“About 40% of the test equipment are for the automotive segment, compared with 30% a year ago, while the remaining are generated from the smart device sector.

“We are projecting a double digit percentage growth for our revenue and bottomline in 2016,” he says.

In the second quarter, Elsoft Research Bhd is expected to deliver 40 units of test equipment priced between US$100,000 and US$200,000 per unit for customers in the automotive, smart devices, and general lighting segments.

“The customers are in Malaysia, Thailand, China, and Taiwan.

“There is no visibility yet for the second half,” said Elsoft chief executive officer C.E. Tan.

According to a Markets-andMarkets report released in March 2016, the automotive semiconductor market, valued at US$32.46bil in 2015, is expected to reach US$48.78bil by 2022, at a compounded annual growth rate of 5.8% between 2016 and 2022.

“Rising trend of vehicle electrification and growing demand for advanced safety, convenience, and comfort systems are the other factors driving the growth of the semiconductor content in the automobiles,” the report says.

Globetronics Technology Bhd’s reliance on the smart device segment and a stronger ringgit are two key reasons for the lacklustre performance of the first quarter ended 31 March.

Group chief executive officer Datuk Heng Huck Lee said that orders for the core sensor products of the group had dropped substantially for the first quarter.

“The strengthened ringgit also eroded our margins,” he said.

The smartphone segment contributes about 45% to 50% of Globetronics revenue for 2015.

According to Heng, there were also requests from customers to reduce the selling price of some of Globetronic’s products, which also impacted on the results.

However, the ringgit’s recovery against the US dollar and declining smartphone sales have prompted stock broking firms to downgrade their call for local technological companies.

RHB analyst reports, for example, for Inari Amertron Bhd, MPI, and Unisem, have downgraded the call for these companies to neutral from buy.

An Affin Hwang Capital report has downgraded its call on Globetronics Technology Bhd to hold from buy.

The anticipated improvement of the US dollar and ringgit exchange rate to RM3.80 from about RM3.90 currently is expected to slow the growth momentum of the companies.

The RHB analyst reports also trim the earnings per share (EPS) of Unisem and MPI due to the recovery of the ringgit.

For Unisem, the EPS for the 2016 and 2017 fiscal year is projected to drop by 4% and 10.7% respectively, while the EPS of MPI for the fiscal year 2016 to 2018 is expected to decline by 9% to 26%.

The RHB report also cuts the forecast of Inari’s EPS for the fiscal years 2016-2018 by 11% to 13%, factoring in a potential delay for the full ramp-up of Inari’s radio frequency business segment to the second quarter of 2017.

According to the RHB report, Inari would have to engage in price renegotiations to mitigate the negative impact of the fluctuating ringgit.

The other challenge is from the projected decline in Apple Inc’s sales.

Apple’s projection for the second quarter that its shipment would be 10% to 15% below street estimates has spurred speculations that there could be inventory corrections and potential softer orders for its component suppliers in the near future.

There is also market speculation that Apple could hold back some its latest innovations from the iPhone 7 series, which is anticipated to be launched in September, as the new features would only be made available for next year’s model.

As a result, iPhone shipment may weaken over the medium term, according to the RHB report.

Should that scenario materialise, there will continue to be downward pressure on Globetronics’ earnings, as the smartphone segment contributes about 45% to 50% of its annual revenue.

According to the Affin Hwang Capital report, orders for Globetronics imaging, motion and gesture sensor have yet to pick up.

The report adds that the volume visibility for June is only at two million units per month, far below the installed capacity of 20 million units per month.

The output of its current proximity sensor, which has been running at 13 million units monthly, is projected to drop to 10 million units by June, according to the report.

Affin Hwang Capital also cuts the EPS forecast for Globetronics for 2016-2018 by between 22% and 53%, largely reflecting the weak first quarter and the delays in the introduction of the new sensors.

However, moving forward, Heng said Globetronics would introduce three new sensor products for its existing customers.

“These sensors would be used in smart phones and smart devices of the mid-range and premium categories, which will be released in the late second quarter or early third quarter of 2016.

“Hopefully, these new products would help the group to deliver improved results for the second half over the first half,” he added.