KUALA LUMPUR (April 25): Automated test equipment maker ViTrox Corp Bhd, which has just seen its net profit halve in the first quarter of 2024, is expecting a gradual recovery in the semiconductor sector towards the second half of the year (2H2024) and is continuing to ramp up its research and development (R&D) investments in anticipation of that.

The group's net profit for the quarter ended March 31 this year fell to RM17.23 million from RM33 million — which marked its fifth consecutive quarter of year-on-year decline — with revenue falling 10.3% to RM119.61 million from RM133.33 million. It attributed the drop in earnings to unfavourable product mix and higher R&D spending.

The market is also expecting a technology upcycle that will spur the manufacturing sector in the second half of 2024.

Earlier this month, S&P Global Market Intelligence said outlook for Malaysia’s manufacturing sector remains positive in anticipation of external demand recovery, particularly in the technology sector — despite activity staying below the growth threshold for the first quarter of 2024, based on the manufacturing purchasing managers’ index.

“For 2024, we will be allocating around 10% to 12% of our group’s revenue for R&D, focusing on vision inspection, artificial intelligence (AI) and robotics that serve growing sectors such as Industry 4.0, high-performance computing (HPC), cloud, automotive and telecommunication infrastructure,” ViTrox chief executive officer Chu Jenn Weng told The Edge when asked about the group's expenditure plans.

Vitrox trimmed its R&D expenditure to 7.8% of total revenue in 2023 — equivalent to RM44.6 million — as part of its “prudent investment strategy” in response to a slowdown in demand. In 2021, the group allocated RM58.5 million for R&D, representing 8.6% of the group's revenue for that year, and in 2022, it set aside RM67.5 million, representing 9%.

The group's revenue tended to increase in the years when there was an increase in R&D spending (see chart), though the group's R&D spending as a percentage of revenue has trended down over the years, as revenue expanded.

Looking ahead, Chu believes that the industry's short-term outlook remains volatile and challenging, with a longer market slowdown than it initially anticipated.

“Nevertheless, in the meantime, we have also observed steady growth and improvements in the back-end semiconductor industry. Overall, we expect a gradual recovery towards the second half of the year,” he said.

At the time of writing, ViTrox's share price edged up by one sen or 0.14% to RM7.41, valuing the group at RM7.01 billion. The counter has lost 58 sen or 7.26% over the past year but has gained 26 sen or 3.64% year-to-date.