This article first appeared in The Edge Malaysia Weekly on May 25, 2020 - May 31, 2020
THE Covid-19 pandemic has abruptly altered the outlook of the global semiconductor industry.
The temporary shutdown of manufacturing activity — initially in some major cities in China, where the virus first emerged, followed by nearly every country in the world — paralysed the global markets from March.
Subsequently, the ongoing trade war between the US and China triggered the accelerated decoupling of the technology sectors of the world’s two largest economies.
While the dust has yet to settle on the tech supply chain disruptions brought about by the pandemic, the undercurrent of trade tension seems to be adding fuel to the fire.
Furthermore, demand growth is also a question mark.
Sales of smartphones and smart devices are expected to slow down owing to weak consumer sentiment, although memory chip demand is likely to remain strong due to increased demand for cloud applications under the new normal.
And while the medical sector is expected to boost chip demand, this might be offset by a slowdown in other industries, including the automotive sector.
What does all this mean for semiconductor and semiconductor-related companies in Malaysia? What are their strategies going forward?
Temporary slowdown
ViTrox Corp Bhd co-founder, president and CEO Chu Jenn Weng concedes that the semiconductor outlook visibility for the next six months remains poor, as the Covid-19 pandemic has disrupted the anticipated strong growth of mobile phones and smart devices arising from the proliferation of 5G in China and other countries this year.
He believes, however, that demand will rebound once the pandemic subsides and consumer sentiment recovers.
“During the downturn, resilient companies will go the extra mile to focus on product innovation, especially on artificial intelligence, while continuously improving their operations to serve their customers faster and better. I’m certain that the slowdown is temporary. We should put more focus on the preparation for the upturn,” Chu tells The Edge.
He points out that tech companies that are well-diversified across various end applications such as telecommunication infrastructure, medical devices and data centres will do relatively better during the Covid-19 crisis, whereas those that rely heavily on the mobile phone industry will experience a severe decline in business in the short term.
“We see relatively strong demand from semiconductor segments especially for memory and chipset, but we are experiencing delayed and postponed shipments in other segments, such as mobile phones. We are cautiously optimistic on the outlook for the next 12 months,” says Chu.
Pentamaster Corp Bhd co-founder and chairman Chuah Choon Bin is of the view that the pandemic will accelerate the digitalisation of businesses, hence industries such as computing, telecommunication devices and cloud applications should be in focus post-Covid-19.
“More business will be conducted through the internet, which demands super-fast speed and powerful computing. We expect our industrial product sector for server and computer manufacturing to grow. For the medical devices industry, we see slower demand for single-use medical devices because people are less willing to go to hospitals unless they are in critical condition,” he tells The Edge.
Chuah acknowledges that Covid-19 will impact Pentamaster’s revenue in the first half of this year, owing to the disruption to its supply chain, restriction in travel as well as the global recession brought about by weaker customer demand.
“We hope to see a better second half of 2020. Overall, we expect this year to be flat. Hopefully, we can perform better in 2021 for the telecommunications, electric vehicle (EV) automotive and IoT (internet of things)-related industries, provided the pandemic is over,” he comments.
Pentamaster’s major customers are mainly from the smartphone, EV automotive, medical device and industrial product industries. Chuah says the group’s business model has to change to adjust to the new normal.
“In order to serve our customers better globally, we need to set up more regional offices in the countries where our customers are. The prospects for automation will never be affected due to advancement of technology where precision and speed are always critical,” he adds.
Navigating the great decoupling
In the longer run and with the potential decoupling of supply chains, Mi Technovation Bhd group CEO Oh Kuang Eng believes his company can be a beneficiary if it is able to seize the opportunity to supply equipment and automation solutions to the new sites.
“In the last few decades, the supply chain has been inevitably interlinked through globalisation. The challenge now is overcoming current restrictions, which hamper material, personnel and information flow. For continuity of the supply chain, there is an urgent need for standard protocols across countries or regions to steer and sync the overall direction,” he tells The Edge.
Oh adds that tech and semiconductor companies in mature ecosystems such as in Northeast Asia are more self-sufficient and have the ability to seek alternative supply sources, whereas those in Southeast Asia are more vulnerable.
“Therefore, we have set up engineering centres in Taiwan and South Korea to fuel our growth plans,” he says.
As it is an equipment manufacturer for wafer level chip scale packaging, Oh says Mi Technovation’s business model is not product specific. Instead, the group looks at the chip market as a whole.
“Semiconductor chips are found inside a wide array of products including computers, smartphones, appliances, aerospace and medical equipment, just to name a few. While the pandemic has altered the demand segments within the pie chart, we believe that the overall growth in demand for chips will still be intact as technology advances,” he says.
Oh notes that as a result of this pandemic, new opportunities are emerging as technology plays a crucial role in addressing and overcoming the crisis. For example, more applications — from home medical devices and disinfectors to tracking algorithms for mass usage — are being developed.
“We seek to benefit from this as higher-performance applications and real-time data will require more advanced technology and higher density of semiconductor content,” he explains.
JF Technology Bhd group managing director Datuk Foong Wei Kuong says it is unfortunate that while the world battles the virus, electrical and electronics (E&E) firms have to face challenges that are nationalistic in nature with regard to the semiconductor supply chain.
Nevertheless, he says Malaysia is fortunate to be a friendly party to both the US and China, with many large American semiconductor companies having had operations in our country for many years. China, meanwhile, continues to grow and is a relatively large market for many companies including those from Malaysia.
“Since we are a friendly country to the US and China, we do not expect any significant impact on our supply and demand but we do not rule out the possibility that there may be some level of disruption to material and equipment supplies going to companies from each side of this trade [war],” he adds.
Foong does not expect JF Technology to be affected by the US-China tensions as it serves customers from around the world. He says the company continues to see healthy orders from customers in the smartphone, computing, networking and server segments, which somewhat offset a decline in orders from automotive customers.
“Our positioning in the E&E supply chain is of utmost importance and significance as without the test sockets that we provide, our customers that are component or integrated circuit (IC) makers will not have the capability to test their ICs that eventually get onto the board of a smartphone, tablet, computer, server, electrical appliance and various instruments in a vehicle,” says Foong.
Globetronics Technology Bhd CEO Datuk Heng Huck Lee concurs that the local E&E players will continue to see new opportunities from growing demand, the introduction of new products as well as a spillover from the US-China trade war.
He adds that spillover from the trade war will result in more foreign direct investment (FDI) and domestic direct investment in Malaysia. With more FDI opportunities coming this way, political stability, investment policy, credibility and consistency in providing incentives will be critical.
Heng says while the smartphone and consumer electronics industries will experience a near-term slowdown over the next three to six months owing to the Movement Control Order (MCO), they are expected to recover fully towards the end of this year and next year.
“New products will be coming onto the market. The MCO should not adversely affect new product launches. If anything, it may just delay them by one to three months. But I guess the slowdown will force many of the players to be even more creative in winning market share. And that should spur new growth when most countries return from lockdown later,” he concludes.
Save by subscribing to us for your print and/or digital copy.
P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.