Chip sweet spot

IT is a well known fact that Malaysia is in a sweet spot when it comes to the semiconductor industry. Just ask those involved in the business in places like Penang and Kulim.

Foreign investments are pouring in. Just last month, Nasdaq-listed printed circuit boards and radio frequency components manufacturer TTM Technologies Inc said it was investing Us$130mil (Rm572mil) to set up a plant in Penang.

This comes after major firms are already spending billions of ringgit ramping up facilities in the northern region of the country. But with all the increased production taking place here and elsewhere, will there be a supply glut that could lead to depressed pricing of products and services.

Indications are that orders for many Malaysian semiconductor players keep pouring in. Many listed semiconductor firms in Malaysia and Singapore are reporting stellar results and hinting at more growth.

And as MIDF Research recently pointed out, “emerging technologies such as artificial intelligence, automotive electronics, augmented and virtual reality depend heavily on the semiconductor industry to provide the computing power necessary.

“Therefore this sector is still set for explosive growth due to its adoption and integration, eclipsing all other sectors, including the financial and the industrial ones.”

With the current equities sell-off, markedly more present in the technology sector, it does make listed semiconductor firms worth a look.

More so those with healthy balance sheets, abundant free cash flows and attractive dividends. Just as important will be the level of technology owned and deployed by these firms. Those lower down the value chain are likely to be the most disrupted by the new supply coming into play while those with advanced processes and patents will see their “moats” protecting them from the competition.