Monday, September 27

Electronic players brace for weak festive sales

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RESILIENT DEMAND: While the sustained global chip sales were largely due to resilient demand from emerging markets, Yap believes there could be weaker sales ahead due to guidance from major tech bellwethers.

KUCHING: The outlook for the semiconductor industry for the latter half of 2011 (2H2011) has turned cloudy as several major technology bellwethers reported weaker-than-expected earnings recently.

“Despite the anticipation of a seasonal pick-up during the year end, this has been hampered by lacklustre guidance by major tech players on the outlook for the industry, highlighted an analyst from RHB Research Institute Sdn Bhd (RHB Research), Yap Huey Chiang.

“The Semiconductor Manufacturing International Corporation has already warned of a potential industry downturn after a six per cent decline in the second quarter of 2011 (2QFY11) revenues and margin squeeze due to slower-than-expected adoption of high-end products.”

This, said Yap, was on the back of global chip sales for the month of July this year of US$24.9 billion (based on a three-month moving average) declined 0.1 per cent month-on-month (m-o-m), although this was slightly better than the June’s drop of 0.6 per cent.

“While overall chip sales continued to fall m-o-m, we note that geographically, Japan showed some recovery, gaining 4.9 per cent m-o-m. By comparison, the US, European Union and Asia fell on a monthly basis by 1.4 per cent, 2.4 per cent and 0.4 per cent respectively,” the analyst further added.

While the sustained global chip sales were largely due to resilient demand from emerging markets, Yap believed there could be weaker sales ahead as major tech bellwethers, such as Texas Instruments and STMicroelectronics, have guided revenue for the third quarter of this year to fall by 1.7 per cent and five per cent respectively.

“On a year-on-year basis, equipment orders continued to weaken, dropping by 29.3 per cent from July drop of 10.9 per cent,” revealed Yap.

“Going forward, we expect equipment orders would likely continue to weaken as chip players cut back on capacity expansion in anticipation of weak chips demand.”

In the near term, the growing uncertainty in the global economy – given the EU and US debt problems – could hamper demand for chips. Thus, due to the limited visibility on the semiconductor sector, RHB Research reiterated its underweight call on the sector.