Domestic semiconductor sales to soften in Q3

KUALA LUMPUR: The local semiconductor industry’s sales are expected to soften in the third quarter (Q3) of 2022 due to weak guidance from the 15 global semiconductor chip manufacturers.

CGS-CIMB Research said that excluding memory sales, the firm projected a tepid one per cent quarter-on-quarter (QoQ) sales growth in Q3 2022.

The World Semiconductor Trade Statistics (WSTS) in August 2022 revised its 2022 and 2023 global semiconductor sales growth forecasts to 13.9 per cent and 4.6 per cent (versus 16.3 per cent and 5.1 per cent in June 2022), mainly due to a reduction in memory prices.

“While most industry research groups still expect positive semiconductor sales growth in 2022, others project an average four per cent year-on-year decline in semiconductor industry sales in 2023, mainly due to the anticipation of a slowdown in the global economy and inventory correction,” it said in a note today.

CGS-CIMB Research also expects the Malaysian semiconductor sector, namely the automated test equipment (ATE) and outsourced semiconductor assembly and test (OSAT), to register a QoQ decline of five per cent in sales and eight per cent in net profit on aggregate in Q3 2022, due to a slowdown in consumer electronics demand, especially for mobiles and tablets, and the impact of China’s zero Covid policy, which continues to disrupt supply chains and customers’ qualification processes.

Overall, it expects the sector to deliver net profit growth of 10 per cent in 2022 (lower than 2021’s 45 per cent) and five per cent in 2023 due to softer industry demand amidst a weaker global economic outlook.

“We expect growth to be driven by favourable foreign exchange movement following the ringgit’s depreciation against the US dollar and structural growth drivers such as rising adoption of silicon carbide (SiC) and gallium nitride (GaN).

“However, we still see key downside risk to sector earnings given longer-than-expected semiconductor inventory digestion and the global recession,” it added.

CGS-CIMB Research has downgraded the Malaysian semiconductor sector from ‘Overweight’ to ‘Neutral’ given the weaker industry demand and sluggish earnings prospects over the next six to 12 months.

nst