Bleak near-term for semiconductors, but long term remains promising
KUALA LUMPUR: The semiconductor industry will likely see a weak near-term outlook due to lower demand from all major product categories and regional markets, analysts observed.
However, the industry’s long-term outlook remains promising due to the rise in semiconductor content in a range of products and future growth drivers.
MIDF Amanah Investment Bank Bhd’s research team (MIDF Research) in its second quarter of 2019 (2Q19) outlook report, noted that Global Semiconductor Sales (GSS) down for the first time as January 2019 worldwide sales of semiconductor sales retraced to US$35.5 billion (down 5.7 per cent y-o-y).
It pointed out that lower sales were recorded across all major product categories and regional markets.
“Premised on this, we expect to see near term weakness in production volume of semiconductor companies under our coverage.
“Nonetheless, the Semiconductor Industry Association (SIA) commented that the long-term outlook remains promising due to the ever-increasing semiconductor content in a range of consumer products and future growth drivers such as artificial intelligence, virtual reality, the Internet of Things, and 5G and next-generation communications networks,” it highlighted.
Meanwhile, it noted that in 4Q18, the global smartphone shipment was down by 4.9 per cent y-o-y to 375.4 million units.
“The decline was mainly due to lower smartphone demand, primarily from Samsung (down 5.5 per cent y-o-y) and Apple (down 11.5 per cent y-o-y) as replacement cycle lengthened further.
“Geographically, mounting challenge was seen in China which the largest focal point. Note that at present China accounts for approximately one third of the world’s smartphone consumption.
“This will serve as one the main indicator on the future demand of smartphone. The recent downward price revision in China on Apple’s latest offering further support our view that production unit will likely to ease further at least until 3Q18 where there is an influx of new smartphone offerings,” it explained. Nevertheless, it pointed out that there are a few flagship smartphone launches expected in the second half of 2019 (2H19).
“Traditionally, top-tier smartphone manufacturers would announce their new flagship smartphones in the third quarter every year, prior to the year-end holiday gift season.
“For 2H19, apart from the iPhone and Samsung lineup, companies such as Samsung, Nokia, Xiaomi and Huawei have line-up their respective models.
“Premised on this, component manufacturers should see orders to trickle in towards the end of 2Q19,” MIDF Research said.
Aside from that, there has been stable demand for automotive LED and as such, it expected the outlook of the LED market to remain promising due to the introduction of new LED lighting applications and increased LED adoption as the preferred mode of lighting.
“In this regard, D&O Green technologies Bhd (D&O) has introduced new LED offerings such as the sedd LED (Smart Embedded Digital Driver). This is the world’s first digital LED designed with the combination of LED, LED driver and advanced communication link integrated into a single package,” it said. All in, MIDF Research maintained its ‘neutral’ call on the sector.
It said :“We view that the con traction in January 2019 GSS serves as an indicator that the semiconductor industry is cooling down, at least in the near-term. China which is the largest focal point remains a concern, especially for Apple, has seen carriers and retailers begun cutting the price of Apple’s latest offering.
“Thus, we view that semiconductor companies which fall within Apple’s value chain to be negatively impacted. On the contrary, we opine that semiconductor companies who are heavily dependent on the automotive market to continue to record strong and stable earnings growth.”