Chip assembly and test providers in the spotlight

Global semiconductor sales grew 1% month-on-month (m-o-m) and 13.2% year-on-year (y-o-y) in January 2021 to US$40bil.

KUALA LUMPUR: The continued rise in global demand for semiconductor amidst the gradual economic recovery bodes well for local outsourced semiconductor assembly and test providers.

Global semiconductor sales grew 1% month-on-month (m-o-m) and 13.2% year-on-year (y-o-y) in January 2021 to US$40bil.

According to TA Securities, this was the first-time that sales growth on a y-o-y basis crossed into the double-digit territory since the start of the upcycle in February 2020.

“This aligns with the strong chip demand and loadings local semiconductor players are seeing, ” it said in a note yesterday.

The World Semiconductor Trade Statistics organisation projected that global semiconductor sales would grow 6.6% to a record high of US$469.4bil in 2021.

By geography, January’s m-o-m sales were driven by China (+3.4% m-o-m), Europe (+2.0% m-o-m), and Asia-Pacific (all others) (+1.5% m-o-m) while sales eased in Americas (-3.0% m-o-m) and Japan (-1.0% m-o-m).

Meanwhile, the strong monthly sales growth of 13.2% y-o-y remained driven by all regions. Except for Americas (+15.4% y-o-y), all other regions recorded accelerated growth led by Asia-Pacific (All Others) (+16.0% y-o-y), China (+12.4% y-o-y), Japan (+9.6% y-o-y), and Europe (+6.4% y-o-y).

“Billings started off strong as well, with January 2021’s higher 13.4% m-o-m and 29.9% y-o-y to US$3.04bil. This also marked monthly billings at a record high and the first time it touched the US$3bil mark, ” said TA Securities.

The robust growth for semiconductor equipment was mainly attributed to accelerating digitalisation amidst the pandemic.

The research house said billings in 2021 are expected to increase further, driven by continued investments across both the front and back end, especially with fabs expanding capacity to meet current global chip shortage.

“This is also on top of the advancements to leading-edge nodes, growing commercialisation of 5G, and robust fab investments in China amid efforts to achieve chip self-sufficiency, ” it added.

Given the robust demand, TA Securities reiterated its “overweight” stance on the semiconductor sector, with “buy” recommendations on Inari Amertron Bhd, Unisem (M) Bhd and Malaysian Pacific Industries Bhd (MPI) and Elsoft Research Bhd.

“Within our semiconductor universe, we continue to favour outsourced semiconductor assembly and test providers including Inari, Unisem and MPI for their clear order visibility and robust earnings growth prospects.

“Their pipeline is generally strong, backed by emerging areas including global 5G rollout, accelerating digitalisation amid the Covid-19 pandemic, as well as prospects of a global economic recovery, ” it said.

Key downside risks to TA Securities’ recommendation include a prolonged Covid-19 pandemic weighing on economic growth and sentiment, a prolonged and heightened trade war, weaker-than-expected sales, and a weakening of the US dollar against the ringgit.

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