Positive mood on Nasdaq boosts local tech stocks


BY YAP LIH HUEY

THE darkest period may be over but there are still no clear signs of recovery in the local semiconductor industry. Nonetheless, the industry is generally hopeful of a recovery in the second half of this year. 

In recent months, stocks of semiconductor companies listed on the KLSE saw a sudden price surge, boosted by interest buying from the market. However, major industry players have expressed cautious outlook on profit performances for the year and beyond. 

The buoyant share performance was mainly attributed to the positive sentiment in Nasdaq and Dow Jones, the rebound of KLSE and the positive year-on-year sales growth in the semiconductor industry. 

In a poll by StarBiz, analysts who track the sector concurred that the surge in the industry would only happen in the second half of the year. 

Analyst Shin Kao Jack from OSK Securities and a senior investment analyst from Mayban Securities projected growth in the double-digit region, while another analyst from a local research house sees an 8% to 10% growth. 

Generally, the positive projections were based on expected increased demand in the mobile wireless market and delayed information technology (IT) spending brought forward to this year and next year by the corporate sector.  

The Semiconductor Industry Association (SIA) expects 2nd-quarter sales to rise 3.5% to 5.5% quarter-on-quarter, with SARS having “little” or “no impact” on the sector.  

Last Thursday, US chip maker Intel Corp announced a lower-than-expected second-quarter earnings outlook, causing investors sentiment to sink, and the effect rippled throughout the entire technology sector in the US, reversing the market's recent gains. 

Intel said it expected revenue to be between US$6.6bil and US$6.8bil for the second quarter ending June 28, compared to the previous forecast range of US$6.4bil to US$7.0bil. 

An analyst said investors were looking to Intel's earnings to answer the question, “Is the slowdown in earnings and capital spending in technology over?” Based on Intel's earnings, the answer is no.  

Semiconductor capital equipment makers would be hit as Intel cut its capital spending to US$4.7bil from the prior plan of US$5bil.  

The company indicated that it would scale back both construction projects and wafer fab equipment purchase, reusing existing older process technology equipment rather than spending on new equipment. 

A country manager from a giant hardware multinational company (MNC) who requested anonymity preferred to take a conservative stance by projecting business back to normal in the first quarter of next year.  

By his definition, the recovery would be back to year 2000's business growth values.  

His company, which has one of the largest market shares in the country, has been receiving declining contract deals since last year and he remained sceptical of optimistic projections from industry players and analysts.  

“The purchase of IT equipment by corporations did not even touch US$1mil last year. And the local semiconductor companies did not buy anything at all. I don't see anything fantastic will happen this year.” 

Referring to Penang as the semiconductor hub of the country, he said things were not so rosy.  

He cited retrenchments by a MNC because the “assembly lines were not moving.” 

He commented that the package by the Penang government, announced about three months ago to attract semiconductor companies back to the island, did not seem to bear fruitful results.  

Among others, the package offered tax exemption, repatriation of money and land lease rates equivalent to rates announced in year 1990.  

“Although there are some signs of recovery, I don't see there will be a surge. A surge will only happen after the first quarter of next year.  

“Projects will eventually flow in. By then, each semiconductor company should be able to at least gain about RM12mil in contract deals per year,” he added.  

Not all is bad news. He said the key driver for the industry to progress was the increased demand in the consumer electronics market, especially mobile phones with cameras, wireless products and medical testing equipment.  

A Mayban analyst sees that companies like MPI, AKN Technology Bhd and Globetronics Technology Bhd no longer compete in the local market. Instead they are going to China because of the sheer market size.  

“If you can't compete, you might as well join them,” she said.  

Meanwhile, analysts see that the semiconductor companies in Malaysia would eventually move to high-tech manufacturing and research and development.  

However, the Mayban analyst cautioned these companies might be bogged down by the challenge of getting technology and people skills and be quick to execute it to be ahead of fast-moving China.  

An analyst who tracks Unisem (M) Bhd and Malaysian Pacific Industries Bhd (MPI) said MPI's new orders from Analogue Devices Inc. would utilise 85% of its plant capacity in Ipoh, up from 65% now.  

The new orders are expected to boost MPI's bottom line by 20% next year.  

“Orders will slowly come in by next year (referring to the overall industry),” he said, noting that Unisem was currently utilising 35% of its capacity and thus had room to grow when new orders came in.  

Going forward, Shin said the “cut and paste” semiconductor business would survive and benefit from outsourcing from MNCs.  

“Both MPI and Unisem have came out with a lighter, heat resistant and smaller chips for the booming cell phone market especially in China, which is expected to have high potential growth rate.  

“The same goes with the Japanese market that is shifting to third generation phones. The same can be seen here soon.” 

He added that for last year, China recorded five million new mobile phone users on a month-on-month basis. 

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