SEMI chief executive officer and president Ajit Manocha
PETALING JAYA: Artificial intelligence (AI)-capable smartphones and the shift in supply chain strategy are some of the near-term catalysts in the semiconductor sector, says Mercury Securities.
“One of the near-term catalysts to watch out for is whether AI-capable smartphones will help to drive the replacement cycle, leading to higher smartphone shipment.
“If this materialises, it will be a tailwind for semiconductor stocks that have significant exposure to the smartphone segment like Inari Amertron Bhd
, Unisem (M) Bhd, and Globetronics Technology Bhd.
“Beyond that, other catalysts such as the shift in supply chain strategy (China +1 strategy) will be more specific for each local company, especially in regard to their efforts and success in securing new clients or new products,” the research house told StarBiz.
The pace of recovery is still uneven across segments, although some reports say industry players remain optimistic, citing volume recovery as Chinese firms look to diversify from their base in China.
In a recent statement, S&P Global Market Intelligence said the chip sector’s revenue growth is expected to see a decline to 24% in the first quarter of 2025, from 44% in the same period the previous year.
S&P noted the semiconductor sector is experiencing varied recovery rates across a myriad of different segments currently.
“With AI applications and Nvidia Corp experiencing an all-time high in its successes, the challenges inevitably follow suit,” it said.
Meanwhile, S&P stated there is a positive increase in growth for the smartphone market driven by pent-up demand, but the long-term trends suggest a contraction due to market saturation.
Conversely, connected devices such as streaming media players and video game consoles are experiencing a slowdown in growth, mainly due to market saturation and a shortage of new product launches.
Mercury Securities said at the moment, a lot of the demand growth for the semiconductor sector is concentrated primarily on logic and memory integrated circuits (ICs), which is not surprising because both are the key building blocks for AI chips.
“Meanwhile, analog ICs (which most Malaysian semiconductor players are concentrated on) are expected to remain sluggish in 2024, before a modest recovery in 2025.
“Outside of AI-related applications, this uneven recovery reflects the subdued demand in other key sectors such as automotive, industrial, and even smartphones,” the research firm said.
Mercury Securities added that any excess inventory faced by the chip industry is well digested by now, following a prolonged period of inventory correction.
“However, plant utilisation rate should take slightly more time to pick up meaningfully, particularly in light of the major capacity expansion undertaken by industry players during the Covid-19 pandemic period,” the research outfit said.
The rollout of the National Semiconductor Strategy (NSS) in May was largely seen as a much-awaited initiative that will be crucial to support the long-term structural growth of the sector in the country.
The Bursa Malaysia Technology Index has been on an upward trajectory since April this year, up by 14.34 points to 77.12 last Friday.
To this end, SEMI chief executive officer and president Ajit Manocha said Malaysia has “tremendous momentum” in advancing its standing in the global semiconductor value chain, and the NSS will contribute to the nation’s progress on front-end chip manufacturing.
“The industry needs multiple hubs to enhance supply chain resiliency and avoid disruptions, and it is beneficial for hubs to incorporate multiple segments of the necessary ecosystem.
“The NSS creation of a research and development hub would strengthen the overall ecosystem in Malaysia, and the NSS training for engineers helps address the industry’s talent shortage,” he told StarBiz.
SEMI is the global industry association representing the electronics manufacturing and design supply chain.
Ajit noted that the government continues to play an important role in increasing the public’s awareness on the importance of the industry, so that the younger generation will continue to be inspired to participate in the Science, Technology, Engineering and Mathematics (STEM) stream.
“That message has to come loud and clear from government leaders around the globe, especially in countries which have the ambition to grow like Malaysia. Before the pandemic, the level of awareness was almost insignificant. However, it has increased a lot since then, particularly due to the chip shortage which highlighted the industry’s importance,” he said.
Ajit added the times have changed, where in the past, the chip industry was highly cyclical, experiencing extreme highs and lows.
“However, those drastic cycles have diminished, and now the industry experiences shallow cycles, like in 2023 which was due to economic conditions. While it remains somewhat cyclical, the fluctuations are less severe.
“Nevertheless, the important thing is that the industry is poised to grow, and for revenue to double in the next 10 years. It took us almost 70 years to hit about US$600bil IC revenue, but by 2030, it is going to reach US$1 trillion in revenue for the semiconductor industry,” he said.
In this regard, Ajit said investor-friendly policies such as the NSS are vital to claiming the strongest possible share of the industry’s projected growth to nearly double to US$1 trillion by the end of this decade.
“The global semiconductor industry has strong fundamentals and is poised for exceptional growth that promises to be a rising tide that lifts all boats to a certain degree. However, countries and regions will compete on some level to carve out their share, and those that do not incentivise the industry are likely to lose ground,” he said.
To a great extent, the chip manufacturing and design supply chain remains global and interconnected, where no single country alone can provide the materials and talent needed. While the industry’s barriers to entry do increase over time, the need for talent and materials provides inroads.
“Malaysia’s robust, young and skilled workforce has been instrumental in driving its semiconductor industry forward. Programmes to attract and develop new talent and to upskill existing workforce are crucial to addressing the industry’s talent and skills gap. These efforts are more effective when they are based on collaboration between government, industry and academia,” Ajit said.
