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The long-term outlook for the technology sector remains bright as a commercialisation of the 5G network could spur demand for semiconductor components despite a lull at the moment, according to UOB Kay Hian Research.

“Essentially, global semiconductor key players are racing to be the front-runners in the 5G space, and other players in the supply chain, from smartphone brands to telcos, have committed investments to roll out 5G networks,” it said.

UOB Kay Hian said that over the medium term, Malaysia’s tech companies are well positioned to tap on opportunities arising from 5G deployment, increasing the demand for semiconductors.

Multinational companies from the United States and China have been in talks with the local tech companies to divert their orders as well as to relocate production facilities to Malaysia, although the meaningful fruition can only be seen later.

“In general, relevant 5G players are committed to introducing 5G-related chips and services with revenue opportunities to come by 2020 and beyond,” UOB Kay Hian added.

On the current trade war tensions between the United States and China, the research house believed that the impact was negligible to the earnings of local tech companies under coverage as their exposure to Huawei is less than 5% of total sales.

“The potential shift from the Chinese smartphone brands might also benefit companies such as Inari and Globetronics given their meaningful exposure to US and South Korean smartphone brands,” it said.

“In terms of risk, we caution that if the China’s government targets the iPhone maker in retaliation to Trump’s policies, this could prompt us to alter our optimistic stance (hence, downside earnings to both Inari and Globetronics) as China accounts for a meaningful 18% of all Apple sales,” it added.

On local technology companies, it said their near-term prospects remained unexciting on the repercussions of trade tensions but the near-term negatives have been fairly priced in. “We expect sequential improvement for sector earnings in the second and third quarter of 2019 on the back of higher volume loadings (thus, better operational efficiency), riding on the September launch of US premium smartphones and stronger seasonality,” it pointed out.

This article was originally published on www.thestar.com.my and can be viewed in full here

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