‘Growth in semiconductor sales seen to resume in 2020, 2021’

TheEdge Thu, Dec 05, 2019 10:14am - 4 years View Original


Semiconductor sector
Maintain neutral:
Global semiconductor sales in October came in at US$36.6 billion (RM152.99 billion), up 2.9% month-on-month (m-o-m) but down 13.1% year-on-year (y-o-y). The growth on a m-o-m basis marked the fourth consecutive month of sequential growth, while that on a y-o-y basis represented further moderation from the mid-teen percentage level. Cumulatively, the numbers are down 13.9% year to date (YTD) to US$338.8 billion due to weakness across most major product categories against the backdrop of a trade war as well as weaker memory demand and pricing.

 
Meanwhile, the World Semiconductor Trade Statistics organisation forecasts global semiconductor sales in 2019 to fall by 12.8% (previously 13.3%) before resuming growth in 2020 and 2021 at 5.9% (previously 4.8%) and 6.3% respectively. Notwithstanding, we view that there is a downside risk in the near term if the US proceeds to impose tariffs on the remaining of its imports from China with the next wave of tariffs covering major consumer items like laptops, smartphones and TVs.

By geography, sales in all regions grew on a m-o-m basis, though only the Americas recorded accelerated growth. On a y-o-y basis, all regions continued to experience declines in sales led by the Americas (-27.1%), followed by China (-10.2%), Japan (-9.3%), Asia-Pacific (all others; -7.4%) and Europe (-7.3%).

Billings in October grew by 7.7% m-o-m and 3.9% y-o-y to US$2.11 billion, the first month in which monthly billings grew on a y-o-y basis after 11 consecutive months of decline. The turnaround was attributed to increased drawdowns on memory inventory and investments in leading-edge equipment. YTD, billings have declined 17.3% to US$19.7 billion due to cutback in investments as inventory levels built up alongside weaker end-demand.

We maintain our “neutral” stance on the semiconductor sector with a “buy” recommendation on Unisem (M) Bhd (target price [TP]: RM2.75), “hold” on Inari Amertron Bhd (TP: RM1.98) and Malaysian Pacific Industries Bhd (TP: RM11.95) as well as “sell” on Elsoft Research Bhd (70 sen). We like Unisem as we expect the complete closure of its loss-making operations on Batam Island, Indonesia to offload the long-standing drag on its earnings. Key downside risks to the sector include a prolonged and heightened trade war as well as a weakening US dollar. — TA Securities, Dec 4

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