The global semiconductor market revenue should grow in 2018 and thereafter stay at a healthy pace supported by the megatrend of the internet of things (IoT) that has multiple applications and increasing use of wearable gadgets, smart home applications, automotive industry, and the use of artificial intelligence (AI) technologies.

Hence, our electrical and electronics (E&E) sector is expected to continue playing a pivotal role. With a growing focus on integrated circuit (IC) design innovation and the adoption of Industry 4.0, this paves way to move up the value chain. Besides, Asia Pacific and in particular China and India, would dominate the smart display market for the automotive industry. Also, the current US-China trade war should have a positive impact on Malaysia.

Our E&E sector has successfully positioned itself in the global supply chain of electronic manufacturing services, outsourced semiconductor assembly and testing as well as in research, design and development. It should flourish from several megatrends such as Industry 4.0, AI, machine learning (ML) and the IoT. Also, the digital lifestyle and economy will continue to support the growth in e-commerce, e-mobility and e-healthcare. Importantly, our local E&E industry is able to leverage these megatrends. We project the average annual growth for E&E segment to be around 9.6% between 2018 and 2022. Growth will be supported by the electronics segment which we forecast at 13.0% between 2018 and 2022.

A. Global Semiconductor

• The global semiconductor market revenue is expected to grow 15.8% in 2018 to reach US$498bil, followed by a slowdown to 4.4% in 2019 and 4.3% in 2020 respectively. It is in comparison with the huge growth of 21.6% reported in 2017 with sales of US$429.1bil, a level not seen over the past 30 years.

• We believe the growth registered in 2018 and thereafter will stay healthy despite exhibiting slower growth rate due to a high-base effect. The sector will remain rosy, underpinned by the megatrend of the internet of things (IoT), which is becoming prevalent with multiple applications. Growth will continue to be driven by the increasing use of wearable gadgets, smart home applications, automotive industry, and the use of artificial intelligence (AI) technologies.

• If the contribution of memory is excluded from global semiconductor market revenue for 2018, the overall market revenue would grow around 8.7%. This suggests the strength of micro components (MPUs and MCUs) along with application-specific logic integrated circuits (ICs).

• Equipment revenue growth is expected to be favourable in the automotive market with a compound annual growth rate (CAGR) of 7.4% from 2017 through 2022. Growth forecast is based on the expected heightened development of advanced driver-assistance systems (ADAS), strength in connectivity and telematics and increasing sales associated with a range of automotive aftermarket products.

• In the data processing category that includes a range of enterprise and personal computing electronics, higher average selling prices (ASPs) are lifting mobile and tablet PCs revenue in 2018, while unit-shipment volume will remain mostly unchanged from 2017. Reflecting richer system configurations and higher component costs, data centre server revenue is also rising, leading to a 10% CAGR from 2017 through 2022.

B. Malaysia’s Electrical and Electronics (E&E) sector

• On that note, our E&E sector is expected to continue playing a pivotal role. This sector is currently the seventh largest exporter of electronics in the world, and a leading hub for assembly and testing. While the Southeast Asian (SEA) region makes up more than 27% of the global assembly, packaging and testing, Malaysia accounts for 13% or close to half of that.

• We should focus on integrated circuit (IC) design innovation and the adoption of Industry 4.0 with the aim to move up the value chain. The introduction of mid-range smart phones, IoT devices and the adoption of electronic functions in the automotive industry should drive demand for semiconductors, integrated circuits and printed circuit board assembly (PCBA) products, popularly also known as electronic motherboards.

• Besides, Asia-Pacific and in particular China and India, are expected to dominate the smart display market for automotive. The US-China trade war could have a positive impact on Malaysia as Chinese manufacturing companies are expected to explore production and shipment from Malaysia to avoid the hefty import duty imposed by the US on Chinamade products.

C. Potential of E&E sector

• Our E&E sector has successfully positioned itself in the global supply chain of electronic manufacturing services, outsourced semiconductor assembly and testing as well as in research, design and development. We foresee the industry flourishing as we move ahead supported by several megatrends. We project the average annual growth for E&E segment to be around 9.6% between 2018 and 2022. Growth will be supported by the electronics segment which we forecast at 13.0% between 2018 and 2022.

• The arrival of Industry 4.0 has allowed the use of AI, machine learning (ML) and the IoT in our daily lives. Digital lifestyle and digital economy, which fall under the “New Millennium” will continue to support the explosive growth in the areas of e-commerce, e-mobility and e-healthcare.

• And to some degree, our local E&E industry is able to leverage these megatrends which offer strong demand for stateof-the-art hardware, along with the diversification into the areas of design and development (D&D), shared services covering human resource, finance and information technology as well as supply chain management for regional and global logistics hubs.

• To unlock greater productivity in this sector, local players need to move up the value chain and be globally competitive. Our local players currently face strong competition from the regional players coming from Vietnam, China and Thailand who are also leveraging this sector to stimulate their economic growth.
• So we need to attract more MNCs and large local companies with the aim for them to set up design and development (D&D) and at the same time assist local SMEs to grow in this sector is vital. Besides developing their capabilities in areas such as R&D and business development, they also need to move across all industrial segments that use E&E components such as automation, industrial electronics, semiconductors, electronics manufacturing services, storage, light emitting diode, solar and IoT.

Source: AmInvest Research - 5 Dec 2018