PETALING JAYA: Malaysian semiconductor players are heading into a tough year as the outlook for the global semiconductor industry turns weaker.
AllianceDBS Research, which is neutral on the domestic technology sector, has advised investors to “stay on the sidelines” for the near term.
The firm has also cautioned against any plans by investors to bottom-fish in the local semiconductor equities scene, describing it as “still early”.
Following two consecutive years of double-digit sales growth, the global semiconductor industry is expected to see a sharp slowdown in sales growth in 2019.
The World Semiconductor Trade Statistics has projected global semiconductor sales to expand by only 2.6% in 2019. This represents a marked difference compared to the 21.6% and 13.7% sales growth recorded in 2017 and 2018, respectively.
The weak outlook is likely to take a hit on the local semiconductor industry, with the slowing demand for semiconductor-based products and the risks of escalation of the ongoing US-China trade war being among the key threats.
Commenting on the outlook of the Malaysian semiconductor industry, AllianceDBS Research said weak growth is likely to be seen this year.
The local semiconductor industry has witnessed exceptional strong growth over the past two years, partly due to the performance of the memory segment.
“We expect the sector to undergo a cyclical downturn in the first half of 2019 (1H19), before starting to recover in 2H19 after the inventory adjustment period is over.
“We think smartphone unit sales is a headwind going into 2019 as the replacement cycle becomes longer, amid the lack of new innovative features.
“Similar to the past few years, the investment theme will still be on content winners that can sustain earnings growth (5G, sensors, automotive and others), but investors might need to be mindful of their entry and exit strategies, as this is likely to be a “crowded” trade again,” stated AllianceDBS Research in an earlier note.
Meanwhile, AmBank Research said that the expected weaker global semiconductor sales would dampen the country’s exports this year.
“Going forward, we expect a softer export growth of between 4.5% and 5%. For comparison, in 2018, Malaysian exports expanded 6.9% while imports rose 5%,” it said.
Despite the projected slowdown in global semiconductor sales in 2019 due to a high-base effect, AmBank Research foresees the sector to remain rosy, underpinned by the megatrend of the Internet of Things (IoT), which is becoming prevalent with multiple applications.
“Growth will continue to be driven by the increasing use of wearable gadgets, smart home applications, the automotive industry and the use of artificial intelligence (AI) technologies.
“We project the average annual growth for the Malaysian electrical and electronics segment to be around 9.6% between 2018 and 2022. Growth will be supported by the electronics segment, which we forecast at 13% between 2018 and 2022,” stated the research house.
Global semiconductor sales hit an all-time high of US$468.8bil in 2018, rising by 13.7% from 2017, according to US-based Semiconductor Industry Association (SIA).
However, the 13.7% growth figure was slightly lower than the World Semiconductor Trade Statistics’ earlier target of 15.9%.
SIA said global sales for December 2018 edged up 0.6% to US$38.2bil from a year ago, but fell 7% from November.
Fourth-quarter sales inched up 0.6% to US$114.7bil but were 8.2% below the third quarter of 2018.
SIA pointed out that the monthly sales numbers were compiled by the World Semiconductor Trade Statistics organisation and represented a three-month moving average.
“Global demand for semiconductors reached a new high in 2018, with annual sales hitting a high-water mark and total units shipped topping one trillion for the first time.
“Market growth slowed during 2H18, but the long-term outlook remains strong.
“Semiconductors continue to make the world around us smarter and more connected, and a range of budding technologies – AI, virtual reality, IoT, among many others – hold tremendous promise for future growth,” said SIA president and chief executive officer John Neuffer in a statement.
Several semiconductor product segments stood out in 2018. Memory was the largest semiconductor category by sales with US$158bil in 2018, and the fastest growing, with sales increasing by 27.4%.
The SIA statement said that even without memory products, the sales of all other products combined increased by nearly 8% in 2018.
Annual sales increased substantially across all regions: China (20.5%), the Americas (16.4%), Europe (12.1%), Japan (9.2%), and Asia Pacific/all others (6.1%).
For December 2018, year-on-year sales increased in China (5.8%), Europe (2.8%) and Japan (2.3%), but fell in Asia Pacific/all others (-0.7%) and the Americas (-6.2%).
Sales in December 2018 were down compared to November 2018 across all regions: Japan (-2.2%), Asia Pacific/all others (-3.1%), Europe (-4.9%), China (-8.1%), and the Americas (-12.4%).
“We urge Congress and the Trump administration to enact polices in 2019 that promote continued growth and innovation, including robust investments for basic scientific research, long-overdue high-skilled immigration reforms, and initiatives that promote free and open trade, such as the US-Mexico-Canada Agreement,” said Neuffer.