FILE PHOTO: Semiconductor chips are seen on a circuit board of a computer in this illustration picture taken February 25, 2022. REUTERS/Florence Lo/Illustration/File Photo
PETALING JAYA: Things are not all that rosy for the technology sector as analysts say the 13% expected gain for this year looks too bullish.
Hong Leong Investment Bank (HLIB) Research said the integrated circuit inventory has remained elevated despite fab utilisation rates continuing to trend downwards since the third quarter of 2022.
In a report, HLIB Research said it does not expect the robust projection to be a reliable reference for Malaysia’s landscape since its exposure to memory and logic is limited.
According to the research house, the prices of gold, steel, aluminium and copper are still high, which may spell bad news for the industry.
“Pricier commodities will exert pressure on margins for packagers and equipment makers. In view of the excess capacity in the sector, tech players might face challenges passing on the higher material cost to customers,” it said.
On a brighter note, high-performance computing demand is anticipated to experience a strong recovery as global tech players move towards developing artificial intelligence (AI) capabilities.
“Automotive is no longer expected to be the main growth driver for the tech industry as end-demand is impacted by high interest rate environments and weak consumer sentiment.
“Orders for the consumer-centric personal computer and smartphone segments are envisaged to recover gradually, leveraging AI-enabled devices,” the research house said.
It also said after a flattish 2023, the KL Technology Index outperformed the broader FBM KLCI with a 9% gain in the first half of this year (1H24). The sector is said to have been buoyed by the Federal Reserve’s long-awaited pivot, mixed financial results, industry-wide inventory adjustment, geopolitical conflicts, waning demand and AI hype.
“Our ‘neutral’ stance on the sector in 1H24 was rewarding as we tactically favoured players in the application space; and with foundry and advanced node exposures,” it noted.
Furthermore, global semiconductor sales saw a surge of 19% in the first five months of this year to US$236bil, driven by memory in terms of volume and average selling prices.
For 2025, the industry is expected to be boosted by the strong demand in memory and logic, while all other key categories are projected to exhibit single-digit growth rates.
On the other hand, global equipment billings fell 6% quarter-on-quarter and 2% year-on-year to US$26bil in 1Q24 due to overcapacity in the supply chain as well as trade tensions.
The semiconductor industry plans to begin operations on 82 new volume fabs, including 42 projects in 2024 spanning wafer sizes ranging from 300mm to 100mm.
Sales are expected to grow 3% year-on-year to US$109bil in 2024 and continue to expand 16% next year on the back of both front and back-end segments as well as being supported by government incentives.
It noted its top picks included ITMax System Bhd
as it liked the group’s business model which is recession-proof. Another top pick is SMRT Holdings Bhd for its potential to leverage on South-East Asia’s growing adoption of smart grid initiatives through its Internet-of-Things business.
