MALAYSIAN-LISTED semiconductor makers can only expect to see moderate growth in the next two years against the backdrop of a protracted trade war and lower global memory demand and pricing, says TA Securities.
While global semiconductor sales for October registered a 2.9% month-on-month increase to US$36.6 bil (RM153.02 bil), making it the fourth consecutive month of sequential growth, year-to-date figures as of Oct 31 show numbers dropping 13.9% to US$338.8 bil.
The reason for the slump is broad-based, covering “most major product categories against the backdrop of the trade war as well as weaker memory demand and pricing,” TA research analyst Wilson Loo said in a Dec 4 note.
The World Semiconductor Trade Statistics in its latest forecast noted that global sales in 2019 were expected to fall 12.8% before ascending in 2020 and 2021 at 5.9% and 6.3% respectively.
But US President Donald Trump and his administration could further damage growth prospects. “Notwithstanding this, we view downside risk in the near-term if the USA proceeds to impose tariffs on the remainder of its imports from China with the next wave of tariffs covering major consumer items like laptops, smartphones, and TVs,” said Loo, who has a neutral stance on the sector.
The US-China trade war, which has spanned some 16 months, has not directly hit chips but the industry has felt some side-effects. Successive rounds of tariffs slapped by both the US and China, beginning July last year, strained technology companies in both countries that rely on semiconductors. That led to higher prices and chip giants such as Intel Corporation to shift supply chains away from China.
Trump had further exacerbated fears when he hinted on Dec 3 the possibility of temporarily halting talks with China until after the US election next year. Such comments rocked the market. Major indices such as the S&P 500 dropped more than 1%, followed by declines of 0.4% in the European Stoxx 600 and 1.6% in the FTSE 100.
TA’s Loo has a buy call on Unisem (M) Bhd, holds on Inari Amertron Bhd and Malaysian Pacific Industries Bhd and a sell on Elsoft Research Bhd. “We like Unisem as we expect the complete closure of its loss-making operations in Batam Island, Indonesia to offload the long-standing drag on its earnings. Key downside risks for the sector include a prolonged and heightened trade war as well as a weakening of the US dollar,” he added.
