DEMAND FOR semiconductors has surged in recent years, driven by trends such as artificial intelligence, 5G networks, electric vehicles, and cloud computing.
Chips are no longer just components. They are strategic assets tied to national security and economic competitiveness.
Over the past month, Hong Leong Investment Bank (HLIB) has tracked numerous price adjustment notices from nearly all major analog integrated circuit (IC) suppliers (including Texas Instruments, Infineon, STMicro, NXP, and MPS), with magnitudes ranging from 5% to 30% and, in some instances, as high as 85%.
While attempted price hikes are not uncommon, the broadbased and synchronised nature of these hikes by analog IC suppliers is indeed rare.
The rationale is clear: the analog supply chain is also grappling with rising cost pressures from mature-node wafers, packaging, and raw materials — indirectly driven by the surge in AI-led demand absorbing industry-wide capacity.
While certain hikes reflect tight supply conditions (such as in power management ICs), HLIB believes some are also aimed at phasing out legacy unprofitable products.
“Similarly, our recent channel checks indicate that select Malaysian OSATs have begun discussions to raise prices from quarter two 2026 (2Q26) onwards, laying the ground for margin recovery despite an anticipated weak 1Q26,” said HLIB.
In their view, synchronised price hikes across analog IC suppliers will make it easier for Malaysian OSATs to push through their own price increases.
Customer acceptance is also more likely, given tight global back-end capacity and ongoing China+1 supply chain diversification in favour of Malaysia.
“We note analog semi inventory remains elevated at approximately 165 days, more than 50% above pre-COVID levels, though we understand supply conditions are already tight in select segments, including industrial and data centres,” said HLIB.
The pace of inventory digestion over the next one to two quarters will be the key indicator in assessing the sustainability of recent price hike initiatives, and HLIB will look to commentary from analog semi suppliers in the upcoming results season for guidance.
For Malaysian OSATs, the positive narrative is further reinforced by tailwinds from ongoing program ramps and capacity migration into Malaysia by their key customers such as Infineon and MPS.
“We upgrade the Malaysian tech sector to Overweight from Neutral, underpinned by an improving pricing environment and growing exposure to AI data centres for the analog semi names,” said HLIB.
This upgrade also follows a significant sector-wide pullback in 1Q26 from sentiment overhang over the ringgit strength and geopolitical uncertainties.
“We see valuations now partly reset to more compelling levels and risk-reward skewing favourably, which has led us to BUY upgrades in Unisem and Inari Amertron recently,” said HLIB.
These additions complement their existing BUY list and current top picks, which include ITMAX, UWC, and Frontken. —Apr 21, 2026
Main image: Observer Research Foundation
