Semiconductors may be at risk if trade war broadens

PETALING JAYA: MIDF Research said that a possible trade war may impact earning prospects of semiconductor companies should it intensify, even though its channel checks have not shown a change to volume orders at this point.
“Should the trade war intensify, we do not discount the possibility that future earnings outlook of these companies could be affected, “ the firm said in its note to investors today.
The Technology index fell some 7% to 29.07 points today, while the FBM ACE Index fell 7% to 4,883.83 points.
Pending further developments of a trade war, MIDF maintained a Neutral stance on the segment.
MIDF Research initially opined that demand for semiconductor products to remain robust, driven by – new smartphone line-up; expected recovery in the tablet market; and stable demand from the automotive industry.
The semiconductor companies under its coverage namely Inari Amertron Bhd and Unisem (M) Bhd saw their share prices fall at market close today. Unisem fell 2.51% to RM2.33 with some 1.84 million shares done, while Inari declined 6.28% to RM2.39 with some 13.33 million shares traded.
Worldwide sales of semiconductor products rose by a year-on-year (y-o-y) 21% to US$36.8 billion (RM142.3 billion), representing the 19th consecutive month of sales improvement since August 2016.
“Billings of semiconductor equipment reached a new height of US$2.41 billion for the month of February 2018. This represents a monthly sequential month-on-month increase of 1.7% after a marginal decline of -1.2% recorded for January 2018. On a y-o-y basis, the billings are 22.2% higher compared to February 2017 billings level of US$1.97 billion. Premised on this, the SEMI expected 2018 to mark the third consecutive year of spending growth, which last occurred in the 1990s,” said MIDF.
Meanwhile, China’s introduction of corporate tax breaks for chipmakers in the country, in a bid to reduce reliance on foreign semiconductors, will add an upside to the earnings of local semiconductor players which have operations in China, namely Inari and Unisem. Under the tax break chipmakers will be exempted from corporate taxes for two to five years followed by partial deductions.