PETALING JAYA: Technology is a fast-running industry and it takes more than just financial stamina to keep up with the developments in the sector.
Just up to three years ago, semiconductor players were slogging through a major downturn with an inventory glut in 2018 and 2019.
Then came the ugly pandemic that trashed global supply chains of almost every industry last year but as economic sectors slowly reopened, there has been no rest for the tech sector, especially semiconductor players.
The situation of the sector now is at the total opposite end of the spectrum as compared to three years ago – there is now a global shortage of semiconductor chips and wafer fabs have been operating at their maximum capacities since last year.
Malaysia, which has a strong presence of players in the semiconductor value chain, is at an advantageous position to benefit from the shortage.
Early signs of a stellar 2021 performance can already be seen as some companies posted their results for the final quarter of the calendar year 2020.
Test socket manufacturer JF Technology Bhd posted a net profit of RM4.01mil for its second quarter ended Dec 31,2020, which was a 184% increase year-on-year (y-o-y).
Aemulus Holdings Bhd, (pic below) which is in the business of automated test equipment and test and measuring instruments, saw its net profit soaring 176% y-o-y to RM1.51mil.
The way the tech counters moved also did not disappoint, some of which have been hitting new highs.
Taking a look at Bursa Malaysia’s Technology Index, it has taken on the shape of an upward slope since the crash of March 19 last year. It closed at 85.19 points yesterday, a growth of 107.38% over the past year.
Kenanga Research analyst Samuel Tan told StarBiz that the surge in consumer demand outpaced capacity expansions.
He noted that many firms took a cautious approach for capex last year due to Covid-19 and this has resulted in an “under investment” scenario as consumer demand spiked.
“Due to the shortage, I believe the rally will continue for the entire 2021, with firms that were well prepared with sufficient floor space or equipment to ride the wave.
“I expect the shortage to last at least until the first half of this year or longer. The earliest for any normalisation to happen will be in the third quarter, ” he said.
Tan said companies that would be able to ride the chip shortage wave were the likes of D&O Green Technologies Bhd, Inari Amertron Bhd, Malaysian Pacific Industries Bhd (pic below) and Kelington Group Bhd (KGB).
He added that KGB will be the first line beneficiary of chip shortage, which stemmed from a wafer fab capacity constraint.
“With the emphasis of wafer fab expansion this year, KGB is poised to benefit from customers such as SMIC and subcontractor jobs from TSMC via a Taiwanese partner, ” he said.
Various lockdown measures globally and the re-implementation of those measures as Covid-19 cases spike have resulted in people being confined to the four walls of their homes since last year.
The pandemic has changed the workplace towards a more remote or home-based and this will likely be the set up for the foreseeable future even if the pandemic subsides eventually.
Work requirements and the need for entertainment has seen consumers spend more time on computers, televisions, gaming consoles, smartphones and various devices.
Manufacturers of these devices are snapping up chips like never before and among the worst hit due to the shortage are automotive manufacturers.
MIDF Research senior analyst Martin Foo explained that when chip producers have limited resources, they would try to cater to the bigger segments first such as electronics, where the majority of the demand comes from.
“The strong performance of semiconductor players will still continue this year and also in the years to come.
“Their customers will want to keep more stock to minimise disruption and bearing that in mind, their outlook is good and earnings in the coming quarters should be strong.
“On China’s side, they are trying to increase their imports and also for the transfer of knowledge, so they might pay a premium for that, ” he said, adding that in the longer term, the electric vehicles segment will be able to provide better earnings visibility for semiconductor companies.
TA Securities Research pointed out in a report that global semiconductor sales in December 2020 eased 2% month-on-month in line with the typical slowdown towards the year-end but it grew 8.3% y-o-y to US$39.2bil.
Sales in the fourth quarter last year were the highest in over two years as it climbed 3.5% quarter-on-quarter and 8.3% y-o-y to US$117.5bil.
Overall, 2020 figures grew 6.5% to US$439bil, ahead of the World Semiconductor Trade Statistics’ (WSTS) growth forecast of 5.1%. For 2021, WSTS forecast global semiconductor sales climbing further 6.9% to a record high of US$469.4bil.