PETALING JAYA: The recovery in the technology sector is expected to be soft in the second half of the year, judging from the 14% decline in global semiconductor sales for the first five months of the year to US$162 billion (RM666 billion).
“From the initial expectation of 3% growth for 2019, the industry is now seeing an average of 4% decline with lower demand from all regions in all products except discretes. The plunge of memory price was a major contributor albeit the recent reversion. The only silver lining is the industry is projected to return to expansionary mode in 2020 with an average of 6% growth,” said HLIB Research in a note last Friday.
The research house said the technology sector is also affected by input cost with major raw material prices including gold, aluminium and copper remain elevated.
“Compounded by stronger US dollar projection, pricier commodities will exert pressures on margins for traditional packaging.”
HLIB Research expects high-performance computing to be the major growth driver for the global technology industry on the back of robust cloud investments and potentially cryptocurrency mining.
Although Internet of Thing device generally has lower IC content, it said this market is too big to ignore.
With regard to the ongoing trade war, the research house takes comfort that the US and China are going back to the negotiation table while sanction on Huawei is lifted for now.
However, it notes that Japan is waging another trade war on South Korea.
“While this may eventually benefit Taiwan, we opine that trade tensions among any of the tech leading nations is a bane due to their strong interdependence in the supply chain.”
HLIB Research maintained its conservatism for the technology sector in the absence of near term catalyst and remain selective, with Frontken Corp Bhd being the top pick.
Meanwhile, Kenanga Research gathered that electronic manufacturing services (EMS) players are more likely the beneficiaries of the trade diversion.
Among the technology companies we visited, while most of them have received enquiries from businesses looking to relocate out of US and China, only PIE (an EMS player) has seen those enquiries crystallising into new orders. This is also the case for technology companies under our coverage.”
The research house also noted that there has been more meaningful positive impact on 5G from the general view, but clarity should only be seen in 4Q19-1Q20.
Going into the third quarter of the year, there has been an increasing number of companies preparing for the adoption of 5G, with the likes of FoundPac Group Bhd observing higher demand for its products with specifications that could be used for 5G.
“We remain upbeat on the prospects for the sector as developments for 5G picks up speed and trade war-motivated enquiries materialise into orders and new customers,” Kenanga said.
