ON JUNE 12, Intel Corp, the California, US-based computer chipmaker, raised its outlook for the industry for the rest of year, citing stronger-than-expected demand for personal computers (PCs) used by corporations. Intel said it now expects 2Q2014 revenue of around US$13.7 billion compared to forecast revenues of US$13 billion previously. It also expects to see a tick up in revenue for the full the year compared to flat revenue forecasts previously.
That lifts hopes for a PC industry which has been shrinking as consumers opt for tablets and smartphones instead. In fact, PC shipments have been falling for eight consecutive quarters through March. Now though, demand from companies for PCs appears to be rising due to Microsoft's winding down of support for its Windows XP operating system in April. Shares of Intel have been on the rise since then, rising 8.6% since April to hit a high of US$28.24 on June 10.
In more positive news for the sector, worldwide chip sales have grown by 11.5% yoy to US$26.3 billion for the month April, representing the third consecutive month of double-digit yoy growth. Recently, the World Semiconductor Trade Statistics revised its forecast for global chip sales upwards from 4.1% to 6.5% in 2014. Meanwhile, semiconductor equipment manufacturers based in the US have also recorded a robust 22.5% and 28.7% yoy hike in bookings and billings to US$1.44 billion and US$1.4 billion, respectively, for the month of April.
The improved outlook could mark a turning point for Singapore’s own tech sector, which has been lacklustre despite signs of better times ahead. “Although expectations for a global macroeconomic recovery appear to be panning out, we believe there are still downside risks,” write analysts of OCBC Research in a June 12 report, ahead of Intel’s announcement.
Indeed, China’s official Purchasing Managers’ Index (PMI) of 50.8 for May came in at a five-month high, while exports for the month of May also rebounded by 7% yoy, beating the Bloomberg median estimate for an increase of 6.7%. Meanwhile, the Europe Central Bank recently cut the deposit rate below zero to boost the European economy, while the recent US ISM Manufacturing PMI reading of 55.4 is the highest year-to-date.
In the recent quarter, several locally-listed tech companies reported weaker-than-expected results. This included Venture Corporation, ECS Holdings, Amtek Engineering and Hi-P International, all of which saw earnings fall below OCBC’s forecasts.
On the other hand, some others delivered strong results, suggesting that the weakness in the sector is not broad-based. One of them is Silverlake Axis, which showed strong earnings growth owing to solid sales of its software and hardware products and good cost control. Meanwhile, UMS Holdings also performed well on the back of a recovery in the semiconductor capital equipment market.
Meanwhile, some local companies have also been drawing takeover interest. Last month, semiconductor company STATS ChipPAC announced that it was in talks with a third party interested in taking over the company. STATS ChipPAC later noted on June 12 that those discussions had been discontinued, but that it was still in talks with other parties keen on acquiring stakes in it. Shares of STATS ChipPAC closed June 13 at 57.5 cents, down by 11.5% a high of 65 cents on June 11.
Owing to the on-going uncertainties in the global economy, OCBC currently has a neutral view on the Singapore tech sector. However, it recently upgraded its recommendation on Venture Corp from a hold to a buy, believing that “the group is poised to benefit from a ramp-up in contribution from new and existing customers in 2H2014,” it writes. The brokerage has a target price of $8.24 on the stock, representing an upside of about 10%.
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