KUALA LUMPUR: Barring any further escalation of trade or geopolitical tensions which could disrupt the already tepid growth environment, prospects for the semiconductor sector are looking positive due to the anticipated adoption of 5G, analysts said.
5G is the fifth generation of wireless technology for digital cellular networks that began to be widely deployed globally in 2019.
Domestically, the Malaysian Communications and Multimedia Commission (MCMC) expects to see the commercial deployment of 5G in the country by the third quarter of 2020 (3Q20).
While 5G adoption will still be limited due to restraints on coverage as well as device availability, Affin Hwang Capital analyst Kevin Low believes that the acceleration of the roll-out — albeit from its small base — should be beneficial to the supply chain.
On top of that, he said that infrastructure players should continue to see better traction over the near term vis-à-vis those in the device space.
“The faster throughput would also likely necessitate data centre upgrades, a segment of the market that has been in overcapacity over much of 2019. The 3D sensing market should also see better adoption in the coming year as AR/VR (augmented reality/virtual reality) and facial ID applications start to cascade into mass market models,” he said in a recent note.
Kenanga Research analyst Adrian Kok pointed out equipment maker ViTrox Corp Bhd has already experienced a surge in orders with demanding deadlines from customers in China.
“Most of the orders were placed for 3D Automated Optical Inspection (AOI) machine, as many facilities in China have yet to switch from 2D to 3D inspection. This is in line with market demand as 5G-enabled printed circuit board (PCB) requires 3D AOI to properly measure top and bottom, as well as trapezoidal sections of the PCB,” he said in a recent note.
As such, Kok recommended devising a strategy which entails taking positions in selective companies which may benefit from the adoption of 5G. Besides ViTrox, he listed Techfast Holdings Bhd as a potential beneficiary of the shift to 5G.
“We foresee OSAT (outsourced semiconductor assembly and test) players like Globetronics Technology Bhd missing out on the growth momentum even though its end customer is in the smartphone business. This is due to the fact that its main focus is on smartphone light sensors and TWS (True Wireless Stereo) gesture sensors, which do not correlate with the growth of 5G,” he observed.
AmInvestment Bank Research believes that because of Inari Amertron Bhd’s exposure to the radio frequency (RF) market, it will benefit from the transition to 5G due to increasing RF chip content per phone with every new 5G model produced. This will cushion any decline in overall smartphone sales — a matter of some concern given that global smartphone sales slid 0.4% year-on-year in 3Q19.
“Customers’ preference for mid-tier phones has led to brands strengthening entry-level and mid-tier offerings which helped Huawei, Samsung and Oppo sales grow and increase market share in 3Q19, while Apple and Xiaomi’s market share declined,” it said.
Nevertheless, MIDF Research believes that the introduction of more 5G smartphones, especially in China, is expected to lend support to the overall smartphone market in 2020. It noted, however, that the smartphone market has been contracting after peaking in 2016.
“In 2020, Apple’s entry into the 5G smartphone market could possibly stir the demand of its loyal followers and set the ceiling price for the next-generation smartphone,” it said.
Semiconductor market set to recover in 2020
It is worth noting that the World Semiconductor Trade Statistics recently projected that annual global sales of semiconductors were expected to fall 12.8% in 2019 to US$409 billion (RM1.66 trillion) from US$468.8 billion in 2018.
It, however, forecast that global sales will increase by 5.9% and 6.3% respectively in 2020 and 2021, signalling a rebound with moderate growth.
While the global semiconductor market slumped somewhat in 2019 compared to the record sales posted in 2018, it has been reported that the recent trend is more positive, with month-on-month sales increasing in October 2019 for the fourth consecutive month.
For AmInvestment Bank, its top pick for the sector is Malaysian Pacific Industries Bhd (MPI) because of its new product portfolio that focuses on the higher-margin specialised market and its leading market position in the ultra-thin micro leadframe package.
MPI is also favoured for its increased research and development in microelectromechanical system sensors as it rides on the Internet of things wave, particularly in the automotive and industrial segments.
AmInvestment Bank has maintained its neutral outlook on the sector, considering the near-term uncertainty in orders clouding the outlook of some semiconductor companies, arising from the long-standing technology and trade spat between the US and China.
MIDF has also maintained its neutral recommendation on the sector, but expects optoelectronics and integrated circuit-logic products to lead the recovery. On the ongoing trade concerns, the research house said a prolonged trade war could lead to decoupling of supply chain apart from potential global slowdown which could affect demand.
“Note that semiconductor is a global industry. Thus, cooperation between countries would be instrumental in driving the industry.
“To maintain earnings the growth trajectory, semiconductor companies are aggressive diversifying their product and service portfolio, and expanding the customer base in the process.”
https://www.theedgemarkets.com/article/5g-adoption-catalyse-semiconductor-sector-amid-trade-war-uncertainties
