Chip sector rebound may take longer than anticipated

Malaysia has been a key beneficiary due to the diversification of global chipmakers’ supply chain beyond North Asia.

IN one of the more candid forward guidance among tech companies, MI Technovation Bhd (Mi Tech) says it does not see a full recovery for the semiconductor sector this year.

“A full recovery for the semiconductor industry is not only slower than expected. A full recovery is unlikely to happen in 2024,” the company states in the notes accompanying its second-quarter (2Q24) results.

Mi Tech also believes that the growth momentum in artificial intelligence (AI) chips may not be sustainable if earnings from AI applications fail to meet expectations, or if the novelty against the theme cools.

Elsewhere, Genetec Technology Bhd is going through a period of order deferments, largely from its key electric vehicle and automotive customers. This is likely to impact its performance in the first half of 2025.

Technology stocks have rallied on the back of a semiconductor upcycle and the AI theme play.

In the region, Malaysia has been a key beneficiary due to the diversification of global chipmakers’ supply chain beyond North Asia, following the US tech sanctions on China and rising tensions between China and Taiwan.

Approved investment commitments into Malaysia’s electrical and electronics cluster nearly tripled in 2023 from the previous year, according to a recent report.

But the rebound may be losing momentum going by companies’ 2Q24 earnings.

BIMB Research says among tech stocks within its coverage, semiconductor-related counters reported earnings below expectations, while the information technology services sub-sector performed as anticipated.

TA Research, meanwhile, sees lower earnings projections for Malaysian Pacific Industries Bhd and Unisem (M) Bhd, the two leading test and assembly semiconductor players.

Outside the country, shares of Nividia – the bellwether for the AI sector’s trajectory – took a beating this week over concerns that AI-related stocks may have risen far ahead of what the technology can actually deliver in terms of profits.

Key Nvidia suppliers in Taiwan, Japan and South Korea have also seen their share price decline.

To be fair, Malaysia’s semiconductor ecosystem has limited exposure to AI chips and is mostly involved in downstream assembly, testing and packaging.

But being export-oriented, a potential slowdown in the US economy or a weakening of the greenback may impact sales.

As of June, data on global semiconductor sales showed the sector growing 15.9% year-on-year, following an 8.2% contraction in 2023.