Focus is now shifting to new smartphone models in 2020
by SHAZNI ONG/ pic by BLOOMBERG
MALAYSIAN technology companies, especially those in the semiconductor business, are expected to experience sluggish growth this year despite the introduction of new mobile phones into the market.
Analysts observed that the industry consensus expectations on sales volume are low, with the focus now shifting to new models in 2020.
Apple Inc last Tuesday became the latest major tech company to unveil its newest mobile phone — the iPhone 11 — with focus on its pricing and camera technology capabilities.
The Cupertino-based company slashed the entry-level price for the iPhone 11 to US$699 (RM2,915) from US$749 for the iPhone XR last year despite many of the premium devices being priced around US$1,000.
Apple introduced three versions of the iPhone 11, including “Pro” models with triple cameras and other advanced features, starting at US$999 and US$1,099.
AllianceDBS Research Sdn Bhd in a sector update last week noted that the new iPhone’s form factor is almost similar to its predecessors except for an upgraded camera system.
“These new models are at the tail end of a three-year life cycle. As such, consensus expectations for sales volume of the new phones are naturally low, similar to the iPhone 7 and iPhone 8 life cycle,” it said.
The research house added that there are other market headwinds such as the US-China trade war and competition from other smartphone brands.
“Though the news flow is generally not positive for Inari Amertron Bhd and Globetronics Technology Bhd, both companies have other mitigating factors (higher AirPods volume and market share recovery) to tide over this cycle.
“The 2020 iPhone models are expected to be more exciting, with rumoured new features such as augmented reality/virtual reality applications with rear 3D sensors; 5G capability; and slimmer notches (or notch-less) with in-screen fingerprint reader,” it said.
AllianceDBS, which has a ‘Buy’ call and target price (TP) of RM1.90 for Inari, its top pick for the sector, noted that the muted sales expectations for the new iPhones are already reflected in Inari and Globetronics year-to-date share price performance.
“We expect iPhone news flow to continue weighing on both companies in the near term, especially with potential US tariffs on smartphones in December,” AllianceDBS noted.
The research outfit stated that, timing-wise, investors should typically start to look ahead to the new cycle around the end of the first quarter of 2020 (1Q20) and early 2Q20, when it believes the key interests will be on content gainers driven by 5G and 3D sensing technologies.
“If the sector’s current down-cycle starts to normalise, we would also be more positive on Malaysian Pacific Industries Bhd on valuation grounds,” it noted.
Globetronic remains a ‘Hold’ for the research house for now until an inflection point emerges with higher contribution from non-smartphone segments, Alliance DBS said.
Inari’s recent joint venture (JV) with PCL Technologies Inc to secure, manage and manufacture optical transceivers and other related products is viewed as a positive one, says Affin Hwang Capital.
Affin Hwang analyst Kevin Low said while the near-term profit contribution from the JV may not seem meaningful for Inari, the broker thinks this could potentially be the first of many other opportunities for the company.
“We suspect the impact of the trade tensions could be a motive behind this partnership, hence, believe there could be greater outsourcing opportunities, especially for well-established and well-managed outsourced semiconductor assembly and test companies such as Inari,” Low noted in a report last week.
Affin Hwang maintains a ‘Buy’ rating on Inari with an unchanged TP of RM1.79.
JP Morgan, in a sector note dated Sept 5, stated that Inari’s earnings growth outlook could improve from the second half of next year (2H20) with increasing 5G smartphone sales likely to benefit the firm.
The multinational investment bank’s global tech team has recently raised the 5G smartphone shipment forecasts and now expects 200 million units of 5G smartphones to ship globally in 2020 (up from 80 million previously).
“The key areas of upside are accelerated adoption of 5G in China, as signalled by telecom carriers, equipment vendors and handset supply chain, and more indicators that Apple is likely to include support for 5G for all three new iPhones in 2H20,” it stated.
China is likely to be the key market for 5G units, accounting for 50% of overall 5G shipments in 2020, JP Morgan forecast.
“With a pickup in 5G activity, we are also raising our global smartphone forecasts and now expect 2020/2021 smartphone units to grow by +3%/2%,” it said.