Mixed views on semiconductor outlook


PETALING JAYA: As the global semiconductor industry nears three years of a supercycle, there are mixed views on the outlook of the industry, going forward.

Some analysts believe that the semiconductor boom could be coming to an end, while others think the upcycle could continue despite some moderation in growth.

In a report yesterday, S&P Global Ratings said the cycle looks set to turn for the booming global semiconductor market.

The main drag will be the end-demand weakness in consumer electronics that could gradually feed through to semiconductors, according to credit analyst David Hsu.

“Given the capacity expansions in the recent upcycle and inventory stockpiling to avoid another round of Covid-related disruptions, downside risks are abound.

“Our ratings leave headroom for cycle changes in cyclical sectors such as semiconductors. However, the coming cash crunch could be larger than usual.

“We view the volatile macro movements, capacity additions and inventory behaviour as the key swing factors for the foundry industry,” Hsu said.

He pointed out that the consumer technology demand weakness among televisions, computers and smartphones appear widespread.

At the same time, weaker-than-expected consumer demand in China could also cause a meaningful downshift in demand for large technology categories such as iPhones or automotive, he said.

The analyst also noted that while enterprise, automotive and data centre demand remain strong and support the global information technology (IT) spending, risks are also rising for enterprise technology demand.

“We see the slowdown in enterprise spending, including reduced data centre investments, as a worrying signal for the semiconductor sector.

“Possible weaker enterprise demand trends in the second half of 2022 could lead us to revise downward our forecasts on the semiconductor market.

“Should increased cautiousness persist, we could further lower our 2022 forecasts. Our latest forecasts put semiconductor growth at 8% for the year, and IT spending growth at 4.3%,” according to Hsu.

In May this year, Deutsche Bank Research said the present semiconductor cycle began in October 2019 and has been running for 29 months, which was already above the historical average of 27.7 months.

The research house also noted that the longest cycle in the last 25 years was between 2005 and 2008, lasting for 38 months.

In June 2022, global semiconductor sales eased 1.9% month-on-month but grew 13.3% year-on-year (y-o-y) to US$50.8bil (RM226.4bil).

With this, the chip sector has recorded 29 consecutive months of y-o-y growth, albeit the fact that growth rates in May and June have moderated to below 20%-mark.

In a note issued yesterday, TA Research said apart from the rise in chip prices amid inflationary pressures, underlying demand also remained strong.

“On a year-to-date basis, sales in the first half of 2022 were up 18% y-o-y to US$304.2bil (RM1.36 trillion), drawing towards the World Semiconductor Trade Statistics organisation’s forecast for global semiconductor sales to increase 16.3% y-o-y to a new record high of US$646.5bil (RM2.88 trillion),” it said.

Taking a contrarian view compared to S&P Global Ratings, TA Research remains bullish on the semiconductor sector and has retained its “overweight” stance.

“Within our semiconductor universe, we continue to favour outsourced semiconductor assembly and test providers, including Inari Amertron Bhd and Malaysian Pacific Industries Bhd (MPI), for their robust sales pipeline and earnings growth prospects, anchored by their expansion roadmap and strong balance sheet.

“Beyond near-term headwinds from geopolitical tensions, supply chain disruptions and inflationary pressures, we anticipate resilience to their order visibility to be underpinned by respective exposure to secular trends.”

For Inari, its expect the group to benefit from the 5G smartphone cycle via its core radio frequency segment.

“As for MPI, we expect the group to benefit from the alignment and strengthening of its product portfolio towards vehicle electrification,” it said.

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