PETALING JAYA: Near-term sentiment remains weak for outsourced semiconductor assembly and test and automated test equipment providers, amid the chip sector’s downcycle, according to TA Research.
However, the research unit said the companies under its coverage, namely Inari Amertron Bhd, Malaysian Pacific Industries Bhd, Unisem (M) Bhd and Elsoft Research Bhd, have strong balance sheets (with all in robust net cash position) which will help them to sail through the current downcycle.“This will also allow them to carry on with capacity expansion plans as they seek the next wave of opportunities from an eventual upcycle, which is anticipated to be catalysed by a slew of secular trends such as 5G, artificial intelligence, high-performance computing, the Internet of Things, and vehicle electrification,” said TA Research.
The research unit said as it had cautiously factored in downside to sales, it maintained its earnings forecasts for the companies under its coverage, to decline 17.2% in 2023 before rebounding 23.2% in 2024.
Key downside risks include heightened geopolitical tensions weighing on economic growth and disrupting supply chains, heightened United States and China trade tensions, weaker-than-expected sales, and weakening of the US dollar against the ringgit.
“We maintain our ‘neutral’ stance on the semiconductor sector,” said the research unit.
TA Research pointed out that the chip sector, as of January 2023, is six months into a downcycle, which begun since August 2022 when growth slipped into negative territory.
In January 2023, global semiconductor sales continued on a downtrend as it fell 5.2% month-on-month and 18.5% year-on-year to US$41.3bil (RM185bil).
This compares against December 2022 which declined 4.4% month-on-month and 14.7% year-on-year to US$43.4bil (RM194bil).
“The semiconductor sector is undergoing a period of inventory correction with weakness following the pent-up demand for consumer, communication or computer end-use during the pandemic, as well as aggravated by the slowing global economy and inflationary pressures,” said TA Research.
For perspective, over the past decade, the chip sector underwent three downcycles, which lasted between 13 to 16 months (average of 14 months).
However, the research unit noted they were ensued by upcycles, which spanned a longer 29 to 32 months (average of 30 months).
In 2022, global semiconductor sector sales climbed 3.2% to a new record high of US$573.5bil (RM2.5 trillion).
For 2023, the World Semiconductor Trade Statistics organisation forecasts global semiconductor sales to ease by low-single digit percentage to US$556.6bil (RM2.4 trillion).