This article first appeared in The Edge Financial Daily on August 8, 2017

Technology sector
Maintain positive: Worldwide sales of semiconductors in June 2017 grew strongly by +23.7% year-on-year (y-o-y) to US$32.6 billion (RM139.53 billion). Such pace of sales growth was last seen in September 2010 when sales increased by +25% y-o-y. This also marked the highest-ever sales recorded for the month of June. Inclusive of this, the global semiconductor sales have been growing on a y-o-y basis for the past 11 months since August 2016. Notably, global semiconductor sales grew at a faster pace of more than +20% y-o-y for the past three consecutive months since April. All markets posted strong double-digit growth on a y-o-y basis of at least +18% y-o-y. The American market was particularly robust, growing by +33.4% y-o-y to US$6.6 billion. This was followed by the Chinese market at +25.5% y-o-y.

Cumulatively, global semiconductor sales in the first half of 2017 (1H17) amounted to US$187.9 billion, an increase of +20.8% y-o-y. This was within the World Semiconductor Trade Statistics’s expectations, accounting for 49.7% of full-year 2017 sales forecast of US$377.8 billion. To recall, the healthy increase was partly driven by lower volume order in 1H16, which was caused by elevated inventory levels as well as strong dollar in some regions.

The Semiconductor Industry Association commented that “conditions are favourable for continued market growth in the months ahead”. Historically, positive June month-on-month (m-o-m) growth in 2016 and 2014 led to a very strong 2H. On the contrary, negative June m-o-m growth in 2015, 2012 and 2011 led to a stagnant 2H. Taking cue from June sales, which grew by +2% m-o-m, we expect that monthly semiconductor sales should increase steadily throughout the third quarter of 2017 before tapering off towards the end of the year. Premised on this, we do not discount the possibility that there could be further upward revision for full-year 2017 sales projections.

The North America-based manufacturers of semiconductor equipment recorded billings of US$2.3 billion in June. This represented an increase of +33.4% y-o-y compared with June 2016 billings of US$1.7 billion. Inclusive of this, billings have been growing on a y-o-y basis for the past 14 months since May 2016, with the exception of September 2016, when a slight contraction of -0.1% y-o-y was recorded. Cumulatively, 1H17 billings surged by more than +50% y-o-y to US$12.6 billion.

In recent years, the China government has been supporting the Chinese domestic semiconductor industry with tremendous capital budgets. This has led to China gradually playing a pivotal role in upholding the demand of semiconductor products. At present, sales from China account for one-third of global sales. China is also the main export destination of Malaysian semiconductor products.

Moving forward, we expect the sales growth momentum emanating from China to remain robust in the foreseeable term. In the immediate term, we expect the global semiconductor sales to continue to record positive sales growth on a y-o-y basis. Our view is reinforced by June sales figure, which remained encouraging.

Apart from the smart devices segment, we also expect healthier demand for the automotive, storage and healthcare markets. The automotive market will be driven by the continuous efforts to increase the average semiconductor content per vehicle. Demand from this market is also less susceptible to seasonality factors, thus providing a steadier stream of revenue. Meanwhile, higher demand for the storage market would be supported by the cloud computing and data centre industries. 

All factors considered, we maintain our “positive” stance for the technology sector. — MIDF Research, Aug 7