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Positive industry outlook

Positive industry outlook

06 Aug 2022

GLOBAL chip sales increased 21.1% year-on-year (y-o-y) in April 2022 to US$50.9bil (RM227bil) and shows little signs of abating.

The World Semiconductor Trade Statistics (WSTS), a body that tracks the industry, projects global chip sales for 2022 to rise by 10.4% y-o-y to a record high of US$613.5bil (RM2.73 trillion).

This will mark a third consecutive year of growth.

As for 2023, WSTS expects a growth of 5.1% to reach a staggering US$680bil (RM3 trillion).

McKinsey in a recent report states that chip sales saw a surge of more than 20% to around US$600bil (RM2.67 trillion) in 2021.

It expects the chip industry’s annual growth to average from 6% to 8% until 2030.

McKinsey says that about 70% of the growth will be driven by the automotive, computation and data storage as well as wireless segments of business.

The report further suggests that automotive will contribute to 20% of the expansion of the chip sector in the coming years while the computation and data-storage market will see an increase of 4% to 6%, supported by applications like artificial intelligence and cloud computing.

Meanwhile, in the wireless segment, the majority of the expansion is accounted for by smartphones and backed by growth in 5G. Meanwhile, Antoine Huchez, a consulting manager from Frost and Sullivan Asia Pacific, says foundries are diversifying their supply chain globally in order to be more resilient in meeting the growing demand for chips worldwide, regardless of the US Chips Act.

“GlobalFoundries Inc for example, is currently expanding its fabrication plants (fabs) in Singapore. They also recently signed an agreement with STMicroelectronics to set up a fab in France. The group also has plans for capacity expansion in the United States and Germany,” says Huchez.

He added that the Chips Act coupled with the establishment of new fabs from GlobalFoundries will spur demand for Malaysia’s back-end process.

“Over the last two years we have seen new investments from Intel, TF-AMD Microelectronics, Infineon Technologies AG and Lam Research Corp in manufacturing, testing and packaging facilities, mainly in Penang. We forecast that this trend might continue,” Huchez says.

Afifah Abdul Malek, equity analyst of BIMB Securities Sdn Bhd notes that the outlook remains optimistic for Malaysia’s semiconductor ecosystem following the Chips Act. Given that the US is one of Malaysia’s largest trading partners, the analyst foresees that there will be a rise in business opportunities for industry players in the country.

“Thus, it is important to ensure the readiness of our local companies in filling up the coming demand for semiconductors. The government should continue to roll out incentives to equip and support ongoing expansion plans in the industry so that we are set to attract investments from other countries,” says Afifah.

Huchez highlighted that on top of coming up with new incentives and policies to leverage on the momentum of the rising demand in the chip industry, the Malaysian government should also look into capacity development for the front-end and back-end segments of chip manufacturing in the country.

“Based on developments in other countries in South-East Asia, notably Thailand (in June 2021 whereby the Thai Board of Investment approved new incentives for investments in semiconductor manufacturing), it is important for Malaysia to do the same as well and look into advancing areas like research and development and equipment manufacturing.

“Talent nurturing is also critical in Asean, as well as globally. The availability of talent is and will remain a key challenge for the industry’s future,” he says.

Meanwhile, Nomura Asset Management UK, senior equity analyst, Takeshi Kawamoto, said though the Chips Act may not negatively impact the back-end package and test activities that Malaysia is known for, in the long run corporations in the country need to consider building outsourced semiconductor assembly and test facilities in the US to be the beneficiaries of new chip supply chains that will be established over there.

“The majority of the funds from the Chips Act will be spent on front-end wafer fabrication, not the back-end segments, so in the near future, Malaysia may not see the effects. However, in the long term, the Chips Act could divert some investment dollars that may have been heading over to Malaysia back to the US,” says Kawamoto.

He added that it is vital for the government to continue to roll out incentives to attract foreign direct investment (FDI) for the purpose of maintaining the fast-growing chip industry of the country.

“Since Malaysia is friendly with all major semiconductor producing nations, if the country plays its cards right, it has the potential to become the “Switzerland of the semiconductor industry”, says Kawamoto.

Interestingly, geopolitics is also playing an increasingly important role in the country’s decision making for economic growth.

“Malaysia’s semiconductor sector is already benefiting from the China-US trade war as companies adopted a “China+1” strategy.

“While Taiwan’s domestic direct investments may not be impacted by tensions with China, its FDI are likely to face uncertainties. In this sense, Malaysia, though not the sole one, could be one of the beneficiaries in this situation,” Huchez says.

Source: The Star