KUALA LUMPUR, July 7 (Xinhua) -- While the worst might be over for Malaysia's technology, analysts opined that its growth for the second half remained subdued amid slowing economic activities.
Kenanga Research said in its recent report that it stayed cautious about Malaysia's technology sector as it anticipated a sustained softening of demand in the third quarter.
According to the research house, its cautious view was following the World Semiconductor Trade Statistic (WSTS) downward revision in global semiconductor sales to -10.3 percent for 2023 from -4.1 percent previously, coupled with persisting operating challenges faced by players due to underwhelming order recovery.
It also said technology companies in Malaysia have expanded their capacity and workforce, which are now underutilized, contributing to further margin pressure.
It also noted that smartphone shipments continue to decline while renewed orders for automotive semiconductors remain weak as car manufacturers are still paring down existing inventories.
MIDF Research also in its recent report opined that the demand for the tech sector would remain tepid in the near to medium term.
The more subdued outlook was in tandem with a more toned-down forecast in terms of global semiconductor sales, which emanates from slower end demand, although there are some bright spots, according to the research house.
Other than the downgrade revision from WSTS, it said the demand for smartphones also remains weak as the International Data Corporation (IDC) has revised further downwards 2023 global smartphone shipment to 1.17 billion, which represents a decline of 3.2 percent year on year from a drop of 1.1 percent year on year previously.
Both revisions reflect a weaker economic outlook as well as ongoing inflation and weakening demand in the end market, said MIDF.
The bright spot for the research house, however, is the resilient shipment for Apple's iPhone.
"Moving forward, we could potentially see a more heightened pace of production activities in-line with Apple's new smartphone launches, which historically take place in September," it added.
It also said that the various policies to promote the deployment of electric vehicles (EV) may create the volume and the value which were similarly seen in the smartphone segment.
According to MIDF, China is the largest EV car market due to its push for clean energy technology, and apart from Tesla, there are five major Chinese EV brands, namely BYD, Nio, Wuling, Geely and Xpeng.
It opined that this would translate into various supply chain opportunities for Malaysian semiconductor companies to fall into.
Meanwhile, Affin Hwang Investment Bank in its recent report projected a 23 percent contraction in Malaysia's technology sector earnings this year, which is wider than its earlier forecast of a 5 percent decline for the year.
"The global economic recovery is bumpy, downside risk is imminent," said the research house.
It said the recovery is thus premised on restocking activities and underlying demand. The latter, however, remains in contention, especially amid increased rhetoric that the United States would face an economic recession while global growth engines, including Europe, remain muted.
Hong Leong Investment Bank Research also said in its recent report that global 300 mm fab equipment spending is expected to contract 18 percent to 74 billion U.S. dollars in 2023 despite the significant incentive boosts from governments.
Due to personal computer (PC) and smartphone's large market shares of global semiconductor demand, it said their weaknesses are unlikely to be offset by the strength in automotive and high performance computers (HPC).
While stronger greenbacks may boost the sector's prospects, it noted that higher input costs may spell bad news for tech players.
It also said pricier commodities will exert pressures on margins for packagers and equipment makers.
"In view of the excess capacity in the sector, tech players might face challenges passing on the higher material costs to customers," it said.
PublicInvest Research, however, said in its recent report that it believes the worst is over for Malaysia's technology industry after a difficult start to 2023.
It said that the inventory overhang situation has been greatly alleviated, and it anticipated that the second quarter will see flattish growth for Malaysia's technology sector before moving into a period of robust recovery in the second half.
Led by the evolving development of artificial intelligence (AI), it opined that other industries will follow suit and become more technology-driven, which will lead to rising demand for the Internet of Things (IoT), cloud computing, automated manufacturing and other services in the future.
The research house also believed that the latest stimulus measures announced by China are likely to give a boost to the car market sentiment, which will benefit the Malaysian outsourced semiconductor assembly and test (OSAT) and automatic test equipment (ATE) companies that have exposure to China's automotive industry. ■