2Q20 outlook for tech sector stays challenging

Global tech supply chain inevitably faces disruption during lockdown and MCO as parts and components supply deliveries get delayed


THE local technology sector is expected to continue performing weakly in the second quarter of the year (2Q20) as the uncertainty from the ongoing Covid-19 pandemic continues to punish the sector’s operating ecosystem, analysts observed.

The global tech supply chain inevitably faced disruption during lockdown and Movement Control Order (MCO) as parts and components supply deliveries got delayed.

“For Malaysia, the semiconductor sector in general is operating at about 50% of manpower while some processes are hindered by a shortage of imported parts and components, hence there is also disruption but not a complete standstill.

“With the MCO still enforced in Malaysia, straddling into the second quarter, and we’re not even sure if there will be further extension, the near-term outlook is certainly not great,” said Areca Capital Sdn Bhd CEO and ED Danny Wong to The Malaysian Reserve yesterday.

Wong said any investor investing in this sector is certainly looking beyond near-term uncertainties.

“I believe the pent-up orders will be quickly filled up when supply chain and operations are back to full force, hence neutralising the weaker output during MCO,” he said.

Wong added that all local tech players will gain from the rebound once the MCO is lifted.

“The outsourced semiconductor assembly and test, and electronics manufacturing services players, who are more labour-dependent than equipment makers, may see stronger rebound as production resumes to normalcy,” he said.

MIDF Amanah Investment Bank Bhd (MIDF Research), in a market outlook report yesterday, stated there could be a possible downgrade in global semiconductor sales forecast.

In December 2019, the World Semiconductor Trade Statistics (WSTS) announced it was expecting the world semiconductor market to recover by 5.9% year-on-year (YoY) to US$433 billion (RM1.87 trillion) in 2020.

January 2020 sales, however, contracted by 0.3% YoY to US$35.5 billion in view of macroeconomic headwinds.

“Coupled with the advent of the Covid-19 outbreak, we expect the pandemic could possibly wipe out any outlook for growth this year.

“Thus, in the upcoming June 2020 announcement, we are expecting the WSTS to revise downwards its annual sales projection for 2020,” MIDF Research said.

The research firm revealed that there were disruptions in production in February 2020 due to the epidemic outbreak with factory closures extended.

“Should there be further outbreak, we do not discount the possibility of another round of production disruption.

“Apple Inc has already provided a warning on a possible shortage of iPhone replacement, possibly up to two to four weeks,” the firm said.

MIDF Research added that smartphone launches in 1Q20 were encouraging and flagship smartphone launches in the second half of this year (2H20) are expected to continue.

Despite the ongoing Covid-19 outbreak, we have yet to see any indication of postponement or cancellation of new smartphone launches which are anticipated to be released in 2H20.

Apple is expected to release the 2020 iPhone 12 and Pro models, while Samsung Electronics Co Ltd is anticipated to roll out the Galaxy Note 12.

“This could bode well for the industry. Should the Covid-19 outbreak taper off, we anticipate there could be heightened production activities to significantly increase the inventory level,” the firm added.