Inari pares loss as analysts see limited impact from Apple's plan to drop Broadcom chip

KUALA LUMPUR (Jan 11): Inari Amertron Bhd shares recouped some of their losses, gaining as much as 1.52% or four sen at RM2.68 on Wednesday morning after analysts said all negative news had been priced in and that the company’s outsourced semiconductor assembly and test (OSAT) business is unlikely to be affected by Apple's move to replace Broadcom Inc’s chips with in-house design chips.

At market close, Inari settled one sen or 0.38% higher at RM2.65, giving the group a market capitalisation of RM9.89 billion.

In the event that Apple successfully develops all types of chips required by its devices, Public Invest Research analyst Chong Hoe Leong said the research house’s back-of-the-envelope calculations showed that Inari’s direct exposure to the world's leading smartphone maker revenue is only 17%-18%, given that Apple contributed about 20% to Broadcom’s annual revenue.

“Alternatively, Apple could directly outsource its assembling and testing jobs to the usual OSAT partners given efficiency and size, cost advantage and reliable track record. We think the chances for Apple to expand into the OSAT area are low, given the high operating cost structure in the US,” Chong said in a research note.

Kenanga Research analyst Samuel Tan did not expect Apple’s move to its in-house design chip to impact Inari’s earnings in the immediate term as Inari is only involved in the radio frequency (RF) filters and not any of the components stated in the news.

“Moreover, RF filters are much more complex in design (compared to Wi-Fi or Bluetooth modules) and are unlikely to be replaced in the short term.

“Based on the trend seen, it will be more than five years (since the acquisition of Intel’s cellular modem arm in 2019) before the US smartphone manufacturer finally implements its own design in 2025 that is able to compete with what Qualcomm is already offering,” he added.

That said, Tan maintained the research house's forecast with the expectation of Inari’s RF business remaining intact, but he trimmed the valuation to account for the increased adverse sentiment towards players involved in the US smartphone supply chain.

As such, he has maintained a “market perform” recommendation for Inari, albeit with a lower target price of RM2.60 (from RM2.85).

Meanwhile, at the current share price, PublicInvest Research’s Chong said the negative news flow has been “fully priced in” and may present a buying opportunity. Hence, he advised investors to take advantage of the negative news flow as current valuations look appealing.