Overall a bad year. 2012 was a turbulent year for tech stocks under our coverage given the lack of a long-term outlook and visibility for the global HDD, semiconductor and camera industries. Up- and down-stream HDD players spent the entire year recovering from Thailand’s catastrophic floods in late-2011. Initially, we were encouraged by their swift recovery as well as the elevated and stable product average selling prices (ASPs). In 3Q, however, demand for PCs slumped, setting in motion a domino effect in the HDD sector and dragging it down in the process. In the semiconductor industry, growth was tepid globally as consumers turned cautious on spending. Similarly, the camera with interchangeable lens (CIL) market started to slow down in the second half of the year after flourishing for the first six months.
HDD sales sink on weak PC demand. The shift in consumer preference towards smartphones and tablets was a major blow to the mature PC market. From 1Q11 to 3Q12, PC shipments were sluggish despite the introduction of the ultrabook. To make matters worse, Windows 8, Microsoft’s latest operating system, also failed to spur the PC market nor give that much-needed lift to demand. As a result, the global HDD sales also shrank.
Worldwide semiconductor sales to stay subdued. Sadly, 2012 was a year best forgotten for most of the semiconductor sub-markets, with the exception of the wireless segment (smartphones and tablets), which continued to grow at a robust clip. As a whole, the industry failed to match the record performance of 2011, during which global sales hit USD299.5bn. The outlook for next year does not look encouraging given that the book-to-bill ratio is still below parity and both the indicators are also heading south. Furthermore, the International Monetary Fund (IMF) forecasting global economic growth of a tepid 3.6% next year, which is not a good sign given that the growth of the worldwide semiconductor sector was already lethargic in 2012 when the world economy was projected to grow 3.3% y-o-y.
Cautious optimism on CIL prospects. The CIL market was strong at the beginning of the year but its pace of growth started deteriorating in the last few months, no thanks to the boycott of Japanese products by the mainland Chinese, which was sparked off by a political dispute involving the Senkaku (Diaoyu) Islands. Also, we are cautious on CIL’s prospects given the growing interdependence and reliance on smartphones for photography. Furthermore, it is a niche market for which demand may be cyclical due to the tendency of consumers to delay their spending on non-essential products.
Maintain NEUTRAL. Looking ahead, we think 2013 may closely mirror 2012 and see another year of lacklustre growth. JCY, being a pure HDD component maker, is subject to higher product concentration risk compared to Notion, which has a diversified product base (HDD + Camera + Auto). We think the former may suffer from the weak demand for HDD products due to the sluggish PC market, while its declining ASP is not helping the situation. Although the external environment has not been supportive, as in the case of MPI and Unisem, we think their efforts to tilt their product mix towards the higher yielding wireless segment may turn out to be a blessing if they succeed. Given this potential catalyst and the inexpensive valuations of the stocks under our coverage, we are NEUTRAL on the sector for now.
HDD sales sink on weak PC demand. The shift in consumer preference towards smartphones and tablets was a major blow to the mature PC market. From 1Q11 to 3Q12, PC shipments were sluggish despite the introduction of the ultrabook. To make matters worse, Windows 8, Microsoft’s latest operating system, also failed to spur the PC market nor give that much-needed lift to demand. As a result, the global HDD sales also shrank.
Worldwide semiconductor sales to stay subdued. Sadly, 2012 was a year best forgotten for most of the semiconductor sub-markets, with the exception of the wireless segment (smartphones and tablets), which continued to grow at a robust clip. As a whole, the industry failed to match the record performance of 2011, during which global sales hit USD299.5bn. The outlook for next year does not look encouraging given that the book-to-bill ratio is still below parity and both the indicators are also heading south. Furthermore, the International Monetary Fund (IMF) forecasting global economic growth of a tepid 3.6% next year, which is not a good sign given that the growth of the worldwide semiconductor sector was already lethargic in 2012 when the world economy was projected to grow 3.3% y-o-y.
Cautious optimism on CIL prospects. The CIL market was strong at the beginning of the year but its pace of growth started deteriorating in the last few months, no thanks to the boycott of Japanese products by the mainland Chinese, which was sparked off by a political dispute involving the Senkaku (Diaoyu) Islands. Also, we are cautious on CIL’s prospects given the growing interdependence and reliance on smartphones for photography. Furthermore, it is a niche market for which demand may be cyclical due to the tendency of consumers to delay their spending on non-essential products.
Maintain NEUTRAL. Looking ahead, we think 2013 may closely mirror 2012 and see another year of lacklustre growth. JCY, being a pure HDD component maker, is subject to higher product concentration risk compared to Notion, which has a diversified product base (HDD + Camera + Auto). We think the former may suffer from the weak demand for HDD products due to the sluggish PC market, while its declining ASP is not helping the situation. Although the external environment has not been supportive, as in the case of MPI and Unisem, we think their efforts to tilt their product mix towards the higher yielding wireless segment may turn out to be a blessing if they succeed. Given this potential catalyst and the inexpensive valuations of the stocks under our coverage, we are NEUTRAL on the sector for now.
Source: OSK
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