• Penang Science Cluster founder Datuk Yoon Chon Leong presented at Bursa Malaysia’s Investors Knowledge Sharing event yesterday on the electrical and electronics (E&E) sector.

• According to Yoon, smartphone sales will continue to be significant to the local semiconductor companies because Malaysia’s industry players are well integrated into the smartphone supply chain. Hence, we saw a selldown on tech companies after Apple guided for lower iPhone sales.

• However, he also highlighted that the industry is well positioned to experience another wave of explosive growth when the commercial adoption of 5G takes place in 1–2 years. Risk to the roll-out of 5G is the long-standing feud between China and the US government. With Huawei being the leader in terms of developing the standards and protocol of 5G, competitors are estimated to be 1 year behind Huawei’s advancement. If the US government successfully obstruct Huawei’s first-mover advantage, this would delay the roll-out of 5G by at least a year as competitors like Ericsson and Nokia will need to play catch-up.

• Other segments such as automotive and cloud servers will continue to experience steady demand as long as automotive manufacturers continue to develop electric vehicles (EV) and autonomous driving. These will require more sensors for active safety features such as blind spot sensor, lane-assist sensor and auto-braking sensor.

• Cloud servers will eventually see the need for storage expansion as enterprises move away from selling software or computer games as a one-off item. Instead, software is being converted into a cloud-based service (SaaS), which offers the developers recurring income from subscription fees paid by the users. In return, users also benefit from periodical updates and improvement on the SaaS they subscribed to. Similarly, cloud-based computer gaming platform like Steam (developed by Valve Corporation) allows developers to generate recurring revenue from in-game purchases while users enjoy new features.

• Malaysian semiconductor companies’ strength is highly concentrated in the manufacturing and final assembly stages. However, these jobs are ranked in the lower levels of the value chain. Recognising this, Yoon and the Collaborative Research in Engineering, Science and Technology (Crest) committee and the Malaysian Investment Development Authority (MIDA) are working towards helping semiconductor players move up the value chain which involves designing chipsets. Currently, they are developing a way to grow gallium nitride (GaN).

• GaN stands to replace silicon – the material that currently dominates the E&E industry. With approximately less than 1% energy loss (compared to silicon’s energy loss of 3%) and lower heat emission, systems that are built with GaN instead of silicon are able to deliver higher power output at a significantly reduced size (Exhibit 1). Anker is one of the first players to develop a charger featuring GaN (Exhibit 2).

• While GaN is recognised as the future of semiconductor, it will take some time before it sees commercial adoption. The biggest obstacle for widespread adoption is conservatism, as large corporations are used to working with silicon. Also, it is not a simple nor straight forward process to replace all the silicon parts on an existing system with GaN as rebuilding and optimising certain electronics around it will be needed in order to take full advantage of gallium nitride.

Source: AmInvest Research - 22 Feb 2019