Industry giants and local players alike are reporting major setbacks in their financial performance, a reflection of the global slowdown.
For instance, Samsung Electronics saw a 95% nosedive in first quarter 2023 (Q1 2023) net profit to 640 billion Korean won (RM2.1 billion), its lowest since 2009.
In Malaysia, Unisem Bhd saw its Q1 net profit plunge 81% year-on-year (y-o-y) while Globetronics was down 65% and ViTrox saw a 34% drop.
One of the few that have bucked the trend is Taiwan Semiconductor Manufacturing Co Ltd (TSMC), which posted a surprise 2% rise in net profit despite expecting a 5% drop.
TSMC’s dominance in making some of the most advanced chips for high-end customers such as Apple has shielded it from a broader industry downturn.
Despite the dismal numbers, analysts are not disheartened. In fact, they see the promise of a recovery.
While technology research and consulting firm Gartner Inc sees an 11.2% drop in revenue for 2023, it expects an 18.5% growth in 2024.
The value of the memory chip market is projected to reach US$92.3 billion (RM411 billion) this year, a 35% drop from 2022. However, it is on track for a 70% growth in 2024.
It’s not really that bad
Despite a chip glut in the local market, RHB Investment Bank analyst Lee Meng Horng and head of equity sales at Rakuten Trade Vincent Lau do not see semiconductor-related companies posting losses this year.
Lee said sales volume and results are usually strong in the second half of the year, a sentiment shared by Lau, whose view is that tech companies “have only taken a little bit of a beating”.
Lau dismissed fears that the semiconductor industry will suffer the same fate as the gloves sector.
The demand for rubber gloves fell sharply as the Covid-19 crisis dissipated but there is always a strong demand for high-end chips to drive artificial intelligence (AI), he pointed out.
On the bright side, the weakness in share prices bodes well for investors.
Following the release of the group’s Q1 results, Globetronics’ share price slipped 8.18% to a low of RM1.01 on May 3 from the previous day’s close of RM1.10.
It closed at RM1.01 yesterday, giving the company a market capitalisation of RM676.14 million.
Lee pointed out that in a slowdown, good companies with strong balance sheets and clear strategy for mid to long-term growth offered opportunities for bargain hunting.
For instance, he said, if the interest rate cycle reaches its peak soon, it could have a positive impact on the relative valuation of a high-growth sector such as technology.
“However, we do not think the recovery is a steep one based on what we see now,” he added. He said the recovery is more likely to be slow and gradual.
Analysts and industry views on when the current decline will bottom out differ.
Globetronics issued a profit warning for the rest of the year with their Q1 results but Vitrox and Unisem have a more optimistic outlook.
Even Samsung, which announced production cuts in April, expects a recovery in the second half of the year.
Among the analysts, Lau said an improvement should come by the end of the year and a rebound in 2024.
However, Kenanga Research analyst Samuel Tan is more cautious, forecasting a turnaround only close to the end of the year, followed by a gradual recovery.
In a note on April 28, he also called for caution on Unisem, pointing out that new capacity coming online in H2 2023 could raise operating costs.
Practice vice-president at Gartner Richard Gordon presents a new scenario for the future.
He said that in the long run, the semiconductor industry would fragment into smaller markets across various sectors.
“End-market demand will be less exposed to consumer discretionary spending and more to business capital spending. Supply chains will be more complex with many more intermediaries involved and varied channels to market,” he added.