Weak semiconductor outlook

Despite signs of better US economy, industry is unlikely to recover until H2 2012
PETALING
JAYA: The near-term outlook for semiconductor sector is weak despite
recent signs of improvement in the US economy, according to research
analysts.
Demand for the sector was unlikely to recover until the second half of 2012, said CIMB Research.
The
research house has maintained its “underweight” rating on the sector,
citing uncertain demand recovery, concerns over consumer spending,
deteriorating external environment and the current investor aversion to
cyclicals.
“The first half of 2012 will be exceedingly weak for the sector due to a fragile global economic recovery and seasonal factors.”
RHB Research Institute noted that uncertainty in the global economy continued to affect consumer and corporate spending.
Although
recent retail data from the United States suggested improving consumer
spending, RHB Research said it preferred to remain cautious until
stronger demand indicators were seen.
Kenanga Research said it
had a “neutral” rating on the technology sector, although it believed
that there was a glimmer of hope for recovery.
“The industry has
always been cyclical and the current upcycle has just started to show
potential signs of recovery,” said Kenanga Research.
CIMB
Research pointed out that recovery was also expected to be anaemic
amidst a more competitive environment, as semiconductor foundries were
starting to encroach upon the territory of packaging and assembly
players by offering more assembly services.
“Also, some of the larger packaging and assembly companies are moving into the low-pin count and lower-end packages.”
CIMB Research said the financial numbers for semiconductor companies Malaysian Pacific Industries Bhd (MPI) and Unisem (M) Bhd were not expected to improve in the near term.
“The
realignment of shipments to demand is not expected to end until the
second half of 2012. There is softness in the personal computer (PC)
segment,” it noted.
Meanwhile, RHB Research said the near-term outlook remained bleak for MPI and Unisem.
Regarding
MPI's propects, RHB Research said the company's key chip packages such
as X3-MLP (micro leadframe) would benefit from demand for communication
devices, which was likely to remain resilient due to growing adoption of
smartphones.
“However, this will not be able to fully offset the
deteriorating demand in the broader market as the company still relies
heavily on the PC and consumer electronics segments.”
Kenanga
Research also noted that MPI had recently declared a financial year (FY)
2012 first interim dividend of 5 sen per share, which was lower than
the historical 10 sen.
As for Unisem, RHB Research said the
company's earnings outlook remained poor, given diminishing order
visibility amidst the global economic uncertainty.
“The recent start of volume loading with a Tier-1 customer (Nasdaq-listed Broadcom Corp) has not been able to mitigate the weak orders from other customers.
“Also,
we believe China's slowdown in economic growth could affect consumer
spending in the region, and thus could impede the growth of Unisem's
operations in Chengdu.”
The World Semiconductor Trade Statistics
(WSTS) has forecast global semiconductor sales this year to surpass the
US$300bil (RM946.5bil) mark for the first time.
The organisation had forecast global semiconductor sales to grow 1.3% year-on-year to US$302bil (RM952.8bil) in 2011.
Last year, it grew 31.8% year-on-year to a record-breaking US$298.3bil (RM941bil), compared with US$226.3bil (RM714bil) in 2009.
WSTS is predicting a healthier 2.6% growth for 2012 and 5.8% growth for 2013.
CIMB
Research reiterated its “underperform” calls on the stocks of Unisem
and MPI, with target prices of 89 sen and RM2.55 respectively.
RHB
Research Institute has maintained its “underperform” calls on Unisem
and MPI, with fair values of 92 sen and RM2.10 respectively based on 0.6
times forward price-to-book value.
Kenanga Research has a
“market perform” call on MPI, and a target price of RM2.80 based on
targeted FY13-end price-over-net tangible asset per share of 0.7 times.
Last Friday, Unisem shares remained unchanged at RM1.03 while MPI closed 4 sen higher to RM2.69.

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