SINGAPORE – Although the Asian semiconductor industry has shown signs of a strong recovery for much of the past quarter, this could be curtailed in February and March due to supply and demand-side disruption amid the novel coronavirus outbreak, Citi Research said.
Prior to the outbreak of the Sars-like disease, combined semiconductor exports of South Korea and Taiwan had been on the rise. In December 2019, South Korea's inventory-to-shipment ratios fell to its lowest since Jun 2009, reflecting positive momentum in the memory chip sector.
With Chinese authorities putting more than a dozen cities in lockdown to contain the virus spread and with labour movements restricted, the country's manufacturing industry is likely to face a labour shortage.
This will lead to a disruption in China's demand for semiconductor imports, Citi Research wrote on Monday. The country is the largest buyer of Asian chip exports, accounting for some 52 per cent of them in 2018.
Most companies in China are planning to resume operations from Feb 10. However, only 30 per cent of the entire workforce are estimated to return from their hometowns to their workplaces as of Feb 11, considering daily transit passenger traffic before and after the Chinese New Year (CNY), according to Citi's equity research team.
Moreover, those returning workers may have to spend another 14 days under self-quarantine from their workplaces.
“Normalisation of freight logistics for input materials and finished goods may also take time,” wrote Citi analysts Kim Jin-Wook and Johanna Chua. “Thus, capacity utilisation rate of manufacturing industries would remain substantially low until the end of February.”
The recovery of China's semiconductor import demand could be delayed to Q2 this year, they added.
As a result, South Korea and Taiwan could “suffer more” in Q1, due to their heavier dependence on China for chip sales, the analysts said.
The inventory restocking of electronics goods may also be delayed to Q2. There could be a potential shortage in China-made intermediate goods or components such as batteries and LCD screens for smartphones, with the Chinese manufacturing sector likely to operate below capacity in the coming months.
This will lead to disruption outside of China, especially in the rest of Asia, where there is high dependence on China-made intermediate goods in household electric appliances as well as electrical machinery and equipment.
In addition, due to economic implications of the novel coronavirus outbreak, the growth of consumers' disposable income is likely to weaken in Q1 this year, which might result in consumers reducing or delaying their purchases of durable electronics goods including smartphones, Citi said.
This, in turn, will imply a fall in demand for components used in the manufacture of those finished goods.
As at 1.20pm on Monday, most of the Singapore-listed counters exposed to the chipmaking segment were trading lower. Hi-P International was down $0.02 or 1.6 per cent to $1.27, Valuetronics dipped $0.01 or 1.4 per cent to $0.71, while UMS Holdings edged down 0.5 Singapore cent or 0.5 per cent to 93.5 cents.
Meanwhile, AEM Holdings was unchanged at $1.87.