‘OUTPERFORM’ CALL KEPT ON INARI
PublicInvest sees higher utilisation rate for company’s radio frequency segment
INARI Amertron Bhd’s outsourced semiconductor assembly and test (OSAT) business is unlikely to be affected by Apple Inc’s move to cut its dependency on Broadcom Incsupplied chips.
Public Investment Bank Bhd (PublicInvest) said yesterday the tech company was planning to swap out Broadcom-supplied chips used for Bluetooth and WiFi by next year and replace them with chips developed internally.
The iPhone maker is working on a proprietary cellular 5G modem chip that is expected to replace the Qualcomm chips in the next two years.
“Apart from seeing some cost savings, we believe that the move will also give them greater flexibility and control to design their products.
“For Inari, we believe its OSAT business is unlikely to be affected given its cost advantage and long establishment in the industry,” said PublicInvest.
In the event that Apple successfully developed all types of chips required by its devices, PublicInvest said its back-of-the-envelope calculations showed that Inari’s direct exposure to the world leading smartphone maker revenue was only 17 to 18 per cent, given that Apple contributed about 20 per cent to Broadcom’s annual revenue.
At the current share price, it viewed that the negative news flow had been fully priced in.
“Alternatively, Apple could directly outsource its assembling and testing jobs to the usual OSAT partners given the efficiency and size, cost advantage and reliable track record.
“We think the chances for Apple to expand into the OSAT area are low given the high operating cost structure in the United States,” it said.
To reduce high dependency on one single customer, Inari has begun to diversify its revenue stream.
It has established a joint venture with China Fortune Tech Capital to set up a radio frequency assembly business in YiWu, Zhejiang.
The commercial operations are expected to kick off by the second half of this year.
It also has collaborated with Singapore-based MIT Semiconductor Pte Ltd to provide customised semiconductor process tools and solutions.
This is expected to contribute an annual revenue of RM100 million.
“Inari remains one of our top picks for the technology sector. We expect higher utilisation rate for the radio frequency segment in the upcoming quarter.”
PublicInvest has kept its “outperform” call on Inari with an unchanged RM3.74 target price.