Excerpts from DBS Research report

How long will chip shortage last?

• Chip shortage shows no signs of abating as demand remains strong

• Higher chip prices and longer waiting times while chip makers ramp up production and boost capacity

• Chip supply situation can improve in 1H22 and is likely to be resolved by 2023

• Semiconductor plays – AEM, ASM Pacific, Frencken, Inari and UMS – are clear beneficiaries; while mid-to-downstream players’ fortunes could be mixed

Chip stocks6.21

Impact of chip shortage on technology stocks under our coverage:

Company

Company Products

Remark

AEM

Back-end testing of semiconductor manufacturing process

AEM provides customised test handlers for burn-in tests, functional tests, and system-level tests for its key customer, a global chipmaker. Hence, AEM is a beneficiary of the global chip shortage. The ramp-up of its next generation tools to its key customer provides a further catalyst for the group.

Aztech

IoT devices, data communication products, LED lighting products

Minimal impact from chip shortage as Aztech is able to leverage on its strong customer-supplier relationship to secure components and raw materials. Aztech also adopts product redesign and innovation to reduce or substitute components that are hard to secure.

Frencken

Diversified product range, including consumer electronics and medical devices; 36% exposure to semiconductor and c.12% to automotive

The current chip shortage is driving demand for both front-end and backend semiconductor equipment. This should benefit the semiconductor business segment, where its exposure has increased to 36% in terms of revenue as at 1Q21. The group has started to see some level of delays in orders from selected customers in the automotive segment as a result of the chip shortage.

Fu Yu

Consumer electronics, medical, printing & network, automotive & power tools

Fu Yu is less affected, as it specialises in the manufacturing and subassembly of precision plastic parts and components and has a diversified product range.

Nanofilm

Provides surface solutions using proprietary technologies

Could see some deferment of selected projects from initial production in the computer/ tablets and wearables/ accessories product category, especially for those new product launches that were released recently, and ramping up production is in the process.

UMS

Front-end semiconductor equipment and components manufacturing

Supplying semiconductor equipment and components to Applied Materials (AMAT), UMS is in a sweet spot to ride on the strong global chip demand. 1Q21 revenue and net earnings were at a record high, with stable margins.

Valuetronics

Consumer electronics, printers, sensing devices, parts for automotive

Overall impacted by chip shortage. Valuetronics is prioritising customers with clear delivery commitments and may procure certain components that are available on the spot market, but these will come at a premium. Hence, margins could be affected. We are projecting a lower net margin of 7.7% for FY Mar 22F, vs. 8.2% for FY21.

Venture

Diversified product range

Selected existing products and new product initiatives (NPIs) were affected. Its 1Q21 results were below expectations, despite the strong order momentum.

 
Full report is here. 

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