Although the Asian semiconductor industry has shown signs of a strong recovery for much of the past quarter, this could be curtailed this month and next because of supply and demand-side disruption amid the novel coronavirus outbreak, Citi Research said.
Before the outbreak of the Sars-like disease, combined semiconductor exports of South Korea and Taiwan had been rising. In December, South Korea's inventory-to-shipment ratio fell to its lowest since June 2009, reflecting positive momentum in the memory chip sector.
With the Chinese authorities putting more than a dozen cities in lockdown to contain the virus spread and with labour movements restricted, the country's manufacturing industry is likely to face a labour shortage.
This will lead to a disruption in China's demand for semiconductor imports, Citi Research wrote yesterday. The country is the largest buyer of Asian chip exports, accounting for some 52 per cent of them in 2018.
Most companies in China were planning to resume operations from yesterday. But only 30 per cent of the entire workforce is estimated to return from their hometowns to their workplaces today, said Citi's equity research team.
Moreover, those returning workers may have to spend 14 more days under self-quarantine.
"Normalisation of freight logistics for input materials and finished goods may also take time," wrote Citi analysts Kim Jin-wook and Johanna Chua. "Thus, capacity utilisation rate of manufacturing industries would remain substantially low until the end of February."
The recovery of China's semiconductor import demand could be delayed to the second quarter of this year, they added.
As a result, South Korea and Taiwan could "suffer more" in the first quarter, on their heavier dependence on China for chip sales.
The inventory restocking of electronics goods may also be delayed to the second quarter. There could be a potential shortage in China-made intermediate goods or components such as batteries and LCD screens for smartphones, with the Chinese manufacturing sector likely to operate below capacity in the coming months.
This will lead to disruption outside of China, especially in the rest of Asia, where there is high dependence on China-made intermediate goods in household electric appliances and electrical machinery and equipment.
THE BUSINESS TIMES