TA Research said the downcycle, which began last August, would likely continue into 2023, on expectations of cooling demand from the computer, communications, and consumer markets.
PETALING JAYA: The semiconductor sector continues its fifth consecutive month of year-on-year (y-o-y) global sales decline in December 2022 despite posting record annual sales in the whole of the year.
TA Research said the downcycle, which began last August, would likely continue into 2023, on expectations of cooling demand from the computer, communications, and consumer markets amid the slowing global economy and inflationary pressures.
The World Semiconductor Trade Statistics organisation has forecast the global semiconductor sales to ease slightly to US$556.6bil (RM2.39 trillion) in 2023 compared to the record high of US$573.5bil (RM2.47 trillion) in 2022. According to the research outfit, the industry had undergone four upcycles over the past decade, which spanned from 20 to 32 months (average of 28 months), and three downcycles, which lasted 13 to 16 months (average of 14 months).
In December 2022, the global semiconductor sales declined further by 4.4% month-on-month (m-o-m) and 14.7% y-o-y to US$43.4bil (RM186.6bil), resulting in a five consecutive months of y-o-y decline.
However, global semiconductor industry sales in 2022 increased by 3.2% y-o-y to a record high of US$573.5bil (RM2.47 trillion).
On a regional basis, the sales decline in December 2022 was dragged by accelerated contraction from China, Asia-Pacific and the Americas.
Sales in China contracted by 5.7% m-o-m and 26.4% y-o-y, while sales in Asia-Pacific dipped by 3.5% m-o-m and 17.1% y-o-y.
The Americas, on the other hand, reported a sales decline of 6.5% m-o-m and 6.6% y-o-y.
“Albeit at a softer pace, a continued slowdown was seen from other regions including Europe (down 0.7% m-o-m, up 3.3% y-o-y) and Japan (down 0.8% m-o-m, up 0.6% y-o-y),” TA Research added.
For the final quarter of 2022 (4Q22), global sales amounted to about US$130.2bil (RM559.8bil), 14.7% lower than the sales in 4Q21 and dwon 7.7% from 3Q22.
“The downtrend throughout the year reflected the weakened demand for consumer electronics post pent-up demand during the pandemic,” the research firm highlighted.In terms of equipment billings, the Semi, an organisation representing electronics manufacturing and design supply chain, projected global semiconductor manufacturing equipment sales to come off an estimated record high of US$108.5bil (RM466.5bil) in 2022 to US$91.2bil (RM392.1bil) in 2023, almost 16% y-o-y decline.
“The double-digit percentage decline in 2023 is expected from both the front-end (wafer fab equipment) as well as back-end (assembly, packaging, and test equipment) segments,” TA Research noted.
Sales are, however, projected to rebound in 2024 to US$107.2bil (RM460.9bil).
Beyond the near term macroeconomic challenges, the semiconductor industry’s robust spending expectations is projected to be driven by the foresight to meet the next wave of demand catalysed by secular trends.
Among the trends are 5G, artificial intelligence, high-performance computing, the Internet of things, and vehicle electrification.
Apart from that, the strategic move by several nations to onshore semiconductor production is expected to contribute to the projected growth.
The research house maintained its “neutral” stance on the semiconductor sector.
Among the key downside risks to its call include the heightened geopolitical tensions weighing on economic growth and disrupting supply chains, heightened US-China trade tensions, weaker-than-expected sales, and weakening of the US dollar against the ringgit. TA Research has a “buy” call on Inari Amertron Bhd
with a target price (TP) of RM3 a share based on price-earnings (PE) ratio of 29 times against the estimated earnings for 2023 financial results.
It has “sell” calls on Unisem (M) Bhd with a TP of RM2.40 based on 20 times PE of estimated 2023 results, and Elsoft Research Bhd with a TP of 61 sen based on 23 times PE.
In view of narrowed risk reward potential following recent share price appreciation, TA Research downgraded its recommendation on Malaysian Pacific Industries Bhd to a “hold” call, with a TP of RM35.60 a share based on 25 times PE of its estimated 2023 earnings.
