PETALING JAYA: The technology sector has been downgraded to “neutral” from “overweight” in view of a series of setbacks, mainly arising from the US-China trade tensions.
AmInvestment Bank Research said the recovery anticipated in the second half of the year was now unlikely to happen.
This, it said, was following what was supposed to be the “final trade talk” on May 10, 2019, taking a turn for the worse, resulting in further tariff hikes and the unexpected trade ban on China’s Huawei.
It noted that although the G20 meeting between the US and China on June 28 had resulted in the lifting of the Huawei ban, the company has not officially been dropped from the US blacklist.
“While the resumption of the trade talks is positive, optimism is partially negated by the absence of a timeline, still leaving many technology companies around the globe in limbo.
“Companies under our coverage had also in recent briefings indicated that their customers are taking a wait-and-see approach, holding back on orders in fear of further tariffs,” it said in a note.
The Semiconductor Industry Association recently reported a decline in global semiconductor sales for the sixth consecutive month, following record sales in October 2018.
During the first four months of the year, sales have fallen 11%, compared to the same period last year.
Noting the deteriorating sector outlook, the World Semiconductor Trade Statistics has revised its 2019 forecast to a 12.1% year-on-year decline from an earlier 2.6% growth forecast, with memory, sensors and optoelectronics identified as the cause of the drastic swing.
Meanwhile, it said, weak car sales in key markets like the EU and China are likely to persist due to weak consumer sentiment, thus lowering demand for the automotive semiconductor.
The research house said while the EU, in May, saw its first positive sales growth in nine months, the growth is likely to be short-lived due to tightening EU regulations on carbon dioxide emission.
This is in view of the industry facing potential fines of up to 33 billion euros if requirements are not met.
On the smartphone front, the research house said while the yearly trend of flagship smartphone launches would still take place, demand is expected to be lukewarm due to lengthier replacement cycle as consumers may put off purchase in the anticipation of 5G.
“While the timeline for commercial deployment of 5G is facing uncertainties due to the US-China dispute, we still see Inari Amertron Bhd as the potential beneficiary when smartphones transition to 5G on a larger scale.
“Having the expertise in the radio frequency chip that is crucial for 5G connectivity in smartphone bodes well for the company,” it said.
AmInvestment Bank Research has Malaysia Pacific Industries Bhd and QES Group Bhd as its top picks for the sector.
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