The Business Times

Credit Suisse sees weakness persisting for electronics demand; investing opportunities present in tech

Yong Hui Ting
Published Tue, Sep 6, 2022 · 06:16 PM

WEAKNESSES in consumer demand for electronics such as smartphones, personal computers and televisions are likely to continue as the technology market in Asia goes through a correction. But not all hope is lost, particularly as chipmaking makes a comeback in South Korea.

The MSCI AC Asia Information Technology (IT) Index, which tracks large and mid-cap IT securities across 14 markets in the Asia-Pacific region, has fallen to near-2020 levels after a bull run during the pandemic, noted Randy Abrams, Credit Suisse’s head of Asia semiconductors securities research.

Abrams was speaking at a media briefing on the sidelines of the bank’s Asian Technology Conference on Tuesday (Sep 6).

He maintained a largely conservative view for the sector, believing that it is likely to continue into the next few months due to a confluence of factors, including a shift in consumer spending from goods to services as well as inflation affecting the global economy.

There was also lesser optimism when it came to smartphone demand, with Credit Suisse slashing its projections for the sector by 13.7 per cent, compared with figures in April. Other sectors where weak sustained demand is expected include 5G smartphones and the personal computer segments, which also saw forecasts lowered by 11.6 per cent and 9.5 per cent, respectively.

But the consumer demand in tech seemed to be showing signs of a bifurcation, particularly as sectors such as automobiles, electric vehicles and cloud computing appear to be holding up relatively better. These are further joined by sustained growth in the metaverse, which has a low base of growth to begin with.

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Bare wafers are also expected to stay resilient due to limited supply growth amid the industry slowdown, as well as strong support from their customers securing the limited new supply under long-term agreement contracts, Credit Suisse said.

Despite a severe chip shortage affecting global supply chains, Abrams was less worried about the supply side of things moving forward. He predicted foundry supply growth to reach 10 per cent in 2022 to 2023, with higher growth on advanced nodes supporting rising central processing unit outsourcing, artificial intelligence, graphic processing units, and 5G.

However, Asian foundries may face downside risks over the US Chips Act — recently signed into law to fund US semiconductor production, research and development (R&D) and science programmes, Abrams cautioned.

“The Act, along with other ongoing geopolitical developments, is expected to lead to shifts in some fab investments to less-efficient locations away from the companies’ R&D centres,” said Credit Suisse.

Further, China’s significant share of the global market in these sub-sectors will undeniably drag down the performance of the global hardware sector, said Kyna Wong, Credit Suisse’s head of China technology and telecom research.

“Considering the weak consumer demand caused by the impact from Covid lockdowns and the challenging global macro environment, we expect China’s inventory concern to last into Q4 2022 or later,” she added.

However, Credit Suisse head of Korea securities research, Keon Han, believes there are still opportunities for investors to capture in the Asian technology sector. Following the capital expenditure cuts as announced by major chip suppliers Samsung and SK Hynix, Han believes the market is poised for an upward cycle recovery.

“We do expect that to happen in the second half of the year going into 2024, given that the key suppliers have already signalled for an investment reduction, with Samsung indicating that it will slow down its wave of production equipment purchase,” said Han.

Given the observations above, Credit Suisse thinks that the tech sector, having priced in at least a moderate correction, is likely to present some investing opportunities. This will either come from some stocks “falling too far”, fundamentals “over-correcting”, or from quality companies with prospects to gain market share or improve profitability.



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