THE outlook for technology companies appears to be steady in the long term with demand drivers such as electric vehicles (EVs) and 5G.

       In the short term, however, even though supply chain hiccups appear to have eased, other challenges have crept up. These include heightened geopolitical tensions and labour shortages, according to analysts.

       Meanwhile, tech companies listed on Bursa Malaysia have shown a mixed bag of quarterly results, with some reporting earnings that came short of analyst expectations while others met or beat projections.

       RHB Research technology sector analyst Lee Meng Horng notes that while supply chain issues appear to have eased, there is a labour shortage that needs to be resolved.

       “The chip shortage is no longer the most pressing issue for the sector. Bottlenecks remain for many tech companies due to the lack of workers. The talent demand in Penang is very high and there is an issue of whether there is sufficient supply,” Lee tells StarBizWeek.

       Lee says the first quarter had seen the majority of the outsourced semiconductor assembly and test (OSAT) companies in the tech sector growing.

       “This was helped by higher loadings, better average selling prices (ASPs) and operating leverage amid robust demand for semiconductor integrated circuits,” Lee says.

       Areca Capital CEO Danny Wong says automation in the realm of the Internet of Things, 5G and EVs is expected to drive the growth of the semiconductor industry.

       “Certain automated test equipment (ATE) players also still recorded robust shipments and orders in the first quarter, thanks to the healthy capital expenditure spending in capacity, albeit at lower margin due to higher material prices and staff costs,” he adds.

       Meanwhile, Areca Capital CEO Danny Wong says automation in the realm of the Internet of Things, 5G and EVs is expected to drive the growth of the semiconductor industry.

       “There may be less demand from smartphones driving the chip sector now as consumer spending may be challenged by the high inflationary environment.

       “But we continue to be positive on the sector as a whole, as it will be cushioned by other areas (of demand).

       “I would still like to put some money into this sector but on a selective basis,” he adds.

       Wong concurs that the labour shortage is an issue being faced by semiconductor players, coupled with the continued Covid-19 lockdowns in China.

       “There are some weaknesses that are likely attributed to the lockdowns in China. So demand may soften this quarter or deliveries may not be there,” Wong says.

       Interestingly, he notes that many of the semiconductor companies he had visited recently are running on full capacity, given the high demand and order requests.

       “For some of the equipment makers, they get the orders and finish them but they cannot install (on site) because of the ongoing Covid-19 lockdowns in China.

       “So these companies cannot recognise the profit from these orders even though the cost has already been incurred,” Wong adds.

       He says some companies have begun to find a route around these supply chain and logistical issues by establishing joint-venture (JV) companies with their key clients abroad.

       “With the JV company, they would just ship the particular part or equipment to China and let the JV company do the assembly.

       “This strategy helps them mitigate the logistics and manpower issues. If this continues, Malaysia and Vietnam would benefit a lot,” Wong says.

       He says this is also seen in United States-based tech companies that set up their JV companies in South-East Asian countries such as Malaysia to perform part of the supply chain’s work.

       “This workaround helps to mitigate the risks from the East-West trade tensions whereby a neutral country is chosen to do it.

       “There would then be less of a need to move personnel around the world, focusing on remote management of these projects.

       “This is an encouraging trend, as prior to 2018/2019, foreign direct investments moved out of the country but now this appears to be starting to reverse although not in a big way yet,” Wong adds.

       Meanwhile, RHB Research’s Lee says the sustained strong demand for semiconductors should continue to positively impact the entire supply chain and this would benefit the back-end players such as the OSATs.

       “For the ATE sub-sector, we should see slower demand in the next one to two quarters, as most of the customers may employ a wait-and-see stance in view of uncertainties on the demand as well as certain constraints seen in wafer supply,” Lee says.

       He notes that some companies will also continue to see margin pressure in the near term due to high material and staff costs, and this would especially be so for those with high order books.