KUALA LUMPUR: The acceleration of digital adoption will provide strong support for chip makers as demand for semiconductors continues to grow.

       Notably, the semiconductor industry is not only the basic building block for many modern technologies but also for emerging technologies such as autonomous driving, artificial intelligence (AI), 5G and the Internet-of-Things (IoT).

       This should boost the sector’s robust growth into the next decade.

       Analysts noted that the sector’s positive prospects are supported by the adoption of 5G smartphones and increased investment in expanding 5G infrastructure globally as well as rising demand for electric vehicles and autonomous driving with more interest in new technologies.

       Additionally, the adoption of Industry 4.0 technologies such as big data, automation and IoT will also spur a more resilient supply chain.

       “The semiconductor industry remains on track to deliver another strong year of growth, ” said MIDF Research in a report yesterday.

       The brokerage, which upgraded its recommendation on the technology sector to “positive” from “neutral” previously, highlighted that the worldwide semiconductor market growth is expected to rise from 6.8% in 2020 to an outstanding 19.7% this year.

       This corresponds to a market size of US$527bil (RM2.19 trillion).

       While this presents big opportunities for local players, AmInvestment Bank Research noted that near-term headwinds remain for tech players given the imposition of the movement control order (MCO) 3.0 from May 12.

       Under the restrictions, the electrical and electronics sector is operating at a 60% workforce capacity with the approval of the International Trade and Industry Ministry.

       “The impact of MCO 3.0 on production depends on the duration of lockdown implemented by the local government.

       “Other near-term uncertainties include higher raw material costs due to the global semiconductor shortage, higher overall costs related to Covid-19 restrictions such as logistics, distribution and sanitation costs, and travel restrictions impacting discussions with potential customers, ” said AmInvestment.

       There is a notable shortage of chips globally as demand remained high and sales continued to rise across a range of chip products.

       However, based on the Gartner Index of Inventory Semiconductor Supply Chain Tracking, chips supply is expected to gradually improve and move towards a moderate shortage zone by the fourth quarter of this year before normalising by the second quarter of 2022.

       AmInvestment pointed out that local players are also on a capacity expansion drive to cater for the demand upsurge.

       “All the companies under our coverage are expanding, ” it said.

       Inari Amertron Bhd intends to continue its capacity expansion for its radio frequency business in line with the growing demand for 5G while Globetronics Technology Bhd is expanding its factory space in Penang by 30%.Malaysian Pacific Industries Bhd (MPI), which is undergoing the second phase of level two expansion at Carsem Suzhou by 50, 000 sq ft, is also seeking a new site in China by the end of this year for its silicon carbide related-products while adding a 121, 000 sq ft building near its M-Site in Ipoh.

       Meanwhile, Pentamaster Corp Bhd is setting aside RM25mil to expand the production space of its Batu Kawan and Bayan Lepas factories in 2021 and is on the lookout for its third plant while Vitrox Corp Bhd is working on the development of its Campus 3.0 which is expected to be completed by 2023

       While AmInvestment is positive on the technology sector, it maintained its “neutral” recommendation on the sector as it believes that multi-year growth riding on positive prospects has been fairly priced in.