Robust global semiconductor sales to date. May 2022 sales increased 18% YoY to US$52bil (Exhibit 2), compared to US$44bil in May 2021. This also marked its 28-month streak of uninterrupted growth. On a YTD basis, sales grew 23% to US$254bil, on track to meet World Semiconductor Trade Statistics’ (WSTS) 2022 global sales projection of US$614bil.
Sales growth led by the Americas market.Amongst regions, Americas rose the most by 37% YoY, followed by Japan (20%), Europe (16%), Asia Pacific (16%) and China (9%). We view the strong growth in Americas to be extremely beneficial to local semiconductor players as according to the Semiconductor Industry Association (SIA), Malaysia accounted for 24% of all US semiconductor global trade in 2021. Globally, Malaysia accounted for 7% of total semiconductor trade flows.
Growth trend to persist until 2023 with localisation on the horizon. We foresee current global chip shortages to persist until 2023 even as the industry ramps up capacity expansion. Furthermore, as the pandemic revealed the shortcomings of global supply chains, more countries are strengthening their local output. With China being the world’s largest consumer/importer of semiconductors, we think that the nation will be most aggressive in capacity expansion as the government has committed to supply 70% of its chip demand locally by 2025, up from just 17% in 2021.
Smartphone demand showing signs of decline. Smartphone shipments decreased 8.8% YoY to 314mil units in 1Q2022 (Exhibit 3), marking its 3rd quarter of consecutive decline. The contraction was mainly led by Chinese smartphone makers, particularly OPPO (-27%), Xiaomi (-28%) and VIVO (-18%) as negative consumer sentiments amid economic uncertainties dampened demand. However, Apple bucked the trend with its shipments increasing 2% due to its more loyal customer base and better supply chain management.
Uninspiring outlook for 5G smartphone demand. While global smartphone shipments are expected to dip 5.8% YoY in 2022, Greater China’s shipments could drop further by 18% YoY, mainly from slower 5G smartphone demand. According to Gartner, China’s zero-Covid policy and resulting lockdowns have softened demand for non-essential items such as 5G smartphones. Globally, 5G smartphone penetration has reached 73% for North America and 76% for Western Europe as at Jan 2022, a dramatic increase since Apple introduced 5G with its iPhone 12 series. We expect slower growth to persist from the smartphone segment as higher 5G smartphone penetration could mean lower demand for upgrades from 4G.
On the other hand, we continue to see critical supply-demand imbalances in automotive chips.Reportedly, several US automakers are shipping vehicles with compromised functions and features, committing to install chips to drivers once supplies become more readily available.
We maintain our OVERWEIGHT call on the sector, favouring companies with a sales mix that tilts toward the automotive segment given the ongoing critical supply-demand imbalance for automotive chips. Our top BUY continues to be MPI (fair value RM45.16), due to its focus to be the globally preferred outsourced semiconductor assembly and test partner for the automotive segment. Recall that the automotive segment accounted for 38% of MPI’s 3QFY22 revenue.
This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....