Soft earnings outlook for tech companies

Any stabilisation in the situation in host countries would be a forward indicator of how things would eventually pan out for local technology companies, which are mainly contractors, say analysts.

PETALING JAYA: The worst may not be over for technology companies that are listed on the Bursa Malaysia as weaknesses in their bottom lines may persist for some time.

The companies, which are contractors for US-based firms, often track the developments in the host country.

Any stabilisation in the situation in such countries would be a forward indicator of how things would eventually pan out for local technology companies, said analysts.

“I get this sense when I discuss this matter with others that the upcoming fourth quarter 2022 earnings reporting season for tech players would indicate more softness,” Rakuten Trade Sdn Bhd’s head of equity sales Vincent Lau told StarBiz.

“I gather that for the bigger tech players in Malaysia, there would be softness seen in their earnings on a quarter-to-quarter basis,” Lau added.

The bigger tech names in the country include Inari Amertron Bhd, Malaysian Pacific Industries Bhd and Globetronics Technology Bhd.

They are due to report their fourth 2022 calendar quarter ended Dec 31, by the end of this month.

Inari’s net profit, reported in its quarter ended Sept 30, 2022, was flat at RM106.25mil, compared with RM106.93mil a year earlier.

Meanwhile, its revenue for the quarter dipped to RM377mil versus RM431.12mil before.

For Globetronics, its net profit for the quarter ended Sept 30 also showed weakness and slipped year-on-year to RM12.78mil from RM16.27mil in the previous corresponding quarter as its revenue dipped to RM46.03mil from RM55.66mil a year earlier.

The tech-dominated Nasdaq Composite Index had shown some recovery from the four month lows that was seen at the beginning of this year, which provides some sense of where Malaysian tech companies will be headed in the near-to-mid term, according to Lau.

The Nasdaq Composite last traded at its near five-month high at 12,113.79 points at press time.

“We have seen a fair bit of layoffs in the United States especially among tech companies and this could be a sign that the situation is bottoming.

“Bear in mind the market looks ahead by six to nine months and they may have already bottomed out so it may be a good time to position these stocks,”Lau said.

The Bursa Malaysia Technology Index last traded at 67.51 points, near its eight- month high.

In its report, Morningstar Equity Research said technology remains another sector it likes now.

“Although the inventory cycle for semiconductors and memory chips may not bottom until mid-2023, we think share prices already reflect the downturn in profit,” Morningstar said in its statement.

The World Semiconductor Trade Statistics organisation is expecting the global semiconductor sales to ease slightly to US$556.6bil (RM2.39 trillion) this year compared with the record high that was achieved in the year before.

Lau, however, noted a bright spot for the tech sector may be in the electronic manufacturing services (EMS) companies in Malaysia.

“The consumer is a little bit stretched now and consumer tech firms will take a little while to recover.

“I also see some shops starting to provide discounts for iPhones or iPads in China. But the tech players which are not directly exposed to the consumers such as the EMS players are still doing all right,” he added.

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techfirms , Bursa , earnings , revenues , outlook , Nasdaq , EMS , chips


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