August 2024 Global Semiconductor Sales +3.5% MoM & +20.6% YoY

In August 2024, the global semiconductor continued its recovery journey by posting another decent sales growth. According to the Semiconductor Industry Association, global semiconductor sales during the month stood at USD53.1bn (+3.5% MoM, +20.6% YoY) versus July 2024’s of USD51.3bn. This marked YoY sales recovery for the 10th consecutive month, while MoM increased for 6th consecutive month. This reaffirms that the global semiconductor market is in an upcycle currently. The strong YoY improvement was mainly driven by Americas (+43.9% YoY), China (+19.2% YoY), and Asia Pacific/All Other (+17.1% YoY). The main driver of this growth was largely contributed by the rising demand for the generative artificial intelligence.

Seeing MoM Sales Growth for 6th Consecutive Month

By geography, August 2024’s sales increase of 3.5% MoM was driven by all regions include America (+7.5% MoM), Japan (+2.5% MoM), Europe (+2.4% MoM), China (+1.7% MoM), and Asia Pacific (All Others) (+1.5% MoM).

Seeing Healthy Growth in Fab Equipment

According to SEMI, the global spending on fab equipment is expected to reach a record USD400.0bn from 2025 to 2027, driven by the regionalisation of semiconductor fabs and the rising demand for artificial intelligence chips used in data centres and edge devices. The global spending on 300mm fab equipment is expected to rise by 4.0%, reaching USD99.3bn in 2024, and further accelerate by 24.0% to USD123.2bn in 2025, surpassing the USD100.0bn mark for the first time. This trend is projected to continue, with spending increasing by 11.0% to USD136.2bn in 2026, followed by a 3.0% rise to USD140.8bn in 2027.

Maintain Overweight

Overall, we expect the near-term earnings of some semiconductor stocks in our coverage to be impacted by the recent strengthening of the Ringgit against the US dollar. Since the sales and costs of many semiconductor players are primarily denominated in or tied to the USD, they are considered net beneficiaries or losers of a stronger or weaker USD, respectively. In a sensitivity analysis of companies under our semiconductor universe, we estimate every 1% depreciation of the USD against the Ringgit will reduce INARI/UNISEM/MPI/ELSOFT’s earnings by 1.3%/3.7%/2.5%/0.2%.

Despite this, we remain optimistic about the medium-to-long term outlook of the semiconductor sector in Malaysia, supported by the ongoing recovery in global demand for semiconductors and increasing trade diversion opportunities arising from the China Plus One strategy. We believe the recent market correction presents a good opportunity for investors to accumulate oversold semiconductor stocks. We reiterate our OVERWEIGHT stance on the semiconductor sector. Maintain Buy recommendations on INARI (TP: RM4.10), UNISEM (TP: RM4.20), MPI (TP: RM38.20), and ELSOFT (TP: RM0.58).

Key downside risks include: i) heightened geopolitical tensions weighing on economic growth and disrupting supply chains, ii) weaker-than-expected sales, and iii) further weakening of the USD against the Ringgit.

Source: TA Research - 7 Oct 2024