The recovery of the sector will depend on the severity and the duration of the Covid-19 pandemic

By SHAZNI ONG / Pic By BLOOMBERG

THE semiconductor industry that is caught in the crossfire of the Covid-19 outbreak and subdued global economic growth, is expected to head for a weaker first quarter financial performance, analysts observed.

MIDF Amanah Investment Bank Bhd (MIDF Research) analyst Martin Foo said for the first quarter of 2020 (1Q20), the sector will be affected by the extended factories closure due to the pandemic.

“While we note that factory operation has resumed, we doubt it is running at full capacity. Thus, this should affect the financial performance of the semiconductor companies.

Inventory should be on the low end,” he told The Malaysian Reserve recently.

“Moving forward, the recovery of the semiconductor sector will depend on the severity and the duration of the Covid-19 pandemic.

“As such, we are maintaining our ‘Neutral’ call on the sector. We will revisit our call once there is further notable development on the pandemic,” he added.

BIMB Securities Research, meanwhile, noted its scenario analysis examines and evaluates possible events that could take place in the future as a result of the coronavirus impact, by considering various outcomes.

“We constructed two scenarios, (one) current scenario, based on possible outcomes and expectations over the next two to three months; and (two) significant deterioration from the current scenario that could see major changes in assumptions and results.

“We acknowledge that it is almost impossible to predict a worst-case scenario at this juncture,” the research firm said in a report on Monday.

BIMB Securities said pre-Covid-19, global semiconductor sales was expected to grow 5% in 2020 on the deployment of 5G technology, according to the Semiconductor Industry Association, and with the automotive segment to recover in 2020.

BIMB Securities noted it was “positive” for Malaysian Pacific Industries Bhd (MPI) as global semiconductor recovery would extend a positive impact on MPI production, supported by over 100% utilisation rate of its plant in China, whereas the firm was ‘Negative’ for Inari Amertron Bhd.

“Despite 5G adoption of the new iPhone, we expect to see one-off pick up in earnings (for Inari) coming from its radio frequency testing business segment before the
release date of products.

“However, we believe earnings would not sustain in following quarters given intense competition from other flagship brands,” it said.

Under the current scenario, however, BIMB Securities said Covid-19 has caused interruption to the global supply chain, shutdown of some semiconductor plants, delay in parts and materials supply, and a surge in raw material price.

“This may result in delay in deployment of 5G technology (including the launch of 5G smartphone and new premium flagship smartphone).

Nonetheless, it expects the second half of the year (2H20) for business and production to resume to normal, (and also) expect(s) global semiconductor sales to decline 5%-10%,” it said.

Any cancellation order could potentially further impact the industry.

“However, MPI utilisation rate dropped to 50% in China’s plant, but expect for back-loaded production in 2H20 to fulfil customer’s demand,” the firm said.

BIMB Securities said it is a ‘Negative’ call for MPI to postpone its Phase 2 expansion in China’s plant, and also ‘Negative’ for Inari on the delay in launching the 5G iPhone as it would drag down the company’s
earnings.

Under possible deterioration where Covid-19 prolongs into 2H20, BIMB Securities expects global semiconductor sales to decline 10%-15%.

“Deep global recession lasting into 2H20, hence we expect global semiconductor sales to decline 15%- 20%,” the firm said.

BIMB Securities added that it expects negative impact on all semiconductor companies to reflect weak demand for end-products.

“Adoption of 5G would be postponed to 2021/2022. We see implementation of Industry Revolution 4.0 to speed up — to replace human beings. In case of more pandemic happening in the future, factories or plants can operate as usual (not much impact),” the firm said.