KUALA LUMPUR (April 7): Asia’s semiconductor market is in a prolonged downturn, driven by slowing demand for consumer electronics, which spiked during the pandemic, according to the Asian Development Bank (ADB).
ADB, in its Asian Development Outlook (ADO) April 2023, said the growth of global semiconductor sales peaked in mid-2021; however, it started contracting in August 2022.
“The market was also hit by the lockdowns in the People’s Republic of China (PRC), which stalled semiconductor production,” it said.
It highlighted that the World Semiconductor Trade Statistics projected semiconductor sales would decline by 4.1% in 2023, led by the memory segment.
“The implications of this for economies in developing Asia may vary, reflecting differences in product segments and economies’ positions in the cycles,” it said.
However, the decline in the semiconductor market is expected to bottom out in mid-2023 and 2024 — on the back of a consistent pattern with more recent cycles that suggest the bottoming-out will happen between 22 months to 25 months after the previous peak.
“Given these expected trends, developing Asia’s key technology exporters should see growing and long-term demand for their exports in the next rise in the semiconductor cycle,” it noted.
The slump in electronics exports has primarily been in high-end semiconductors and has affected developing Asia’s key technology exporters, namely South Korea, Singapore and Taipei.
Meanwhile, economies in the region that focus more on lower-end semiconductors — Malaysia, the Philippines, Thailand and Vietnam — have seen less of a decline in their electronics exports, and a mini-rebound synchronised with China’s reopening.
Nonetheless, semiconductor demand will be supported by several global trends, including the remarkable growth in chip-intensive electric vehicles, which saw sales double to 6.6 million in 2021 from the previous year, and is expected to continue in the coming years.
“Other important drivers of semiconductor demand include next-generation wireless (NextG) communication, the growth of cloud computing, and the expansion of the Internet of Things (IOT),” it added.
Kenanga Investment Bank Bhd, on the other hand, maintained its “neutral” rating on the technology sector as it anticipates the ongoing industry inventory adjustment to extend into the second quarter of 2023.
“We gathered from players under our coverage (such as D&O Green Technologies Bhd, Malaysian Pacific Industries Bhd [MPI] and Unisem [M] Bhd) that there has not been a major boost in chip demand on the heels of recent China’s reopening, which will remain over the medium term,” Kenanga analyst Samuel Tan said in a note on Friday (April 7).
The analyst views that automotive demand in 2023, thus far, has yet to show a pickup in numbers, as consumers scale down on large-ticket item purchases amid growing uncertainties surrounding the macro environment.
“China car sales, on a year-on-year (y-o-y) basis, plunged 32.9% in January (owing to the Chinese New Year holidays), followed by an 11.6% recovery in February, while Europe car sales growth hovered around 11% for both periods.
“However, note that these numbers came from a low base comparison in the prior year due to the much worse semiconductor shortage in early 2022,” he said.
While the long-term trend of electric vehicle adoption remains intact, he foresees that the immediate outlook remains choppy owing to economic fears.
As such, many car manufacturers are still in the mode of rationalising their existing inventories, he noted.