Concerns over tech slowdown 

WITH Malaysia’s technology index down by almost 25% year-to-date, it is obvious that the sector is in for a rough ride.

The two widely reported issues hitting the sector are the uncertainties surrounding US trade policies and Chinese artificial intelligence (AI) technologies, raising questions about the need for pricey chips.

For Malaysian tech stocks, which are largely linked to the semiconductor industry, the latest quarterly earnings of some players point to some cracks in the business.

Take the case of SFP Tech Holdings Bhd, which provides factory automation and assembly services for the semiconductor industry.

It posted a first quarterly loss this week, and a big one too, of RM21.3mil (compared with a net profit of RM7.4mil in the same quarter last year). This was due to provisioning on concerns that a major customer will default on payment.

SFP Tech, which had been hailed as one of the top performing new listings since it went public in 2022, has seen its share price halved in the last month alone.

Going by its current price of 32 sen, this would mean that a massive RM2bil in market value has been wiped out from the stock from its high in July 2023, when its share price hit RM1.16 giving it a market capitalisation then of RM2.8bil.

More surprisingly, just earlier last month, some analysts believed SFP Tech stood a good chance at beating expectations.

Are SFP Tech’s troubles unique to the company? It does not seem so.

UOB Kay Hian (UOBKH) Research, which ceased coverage of SFP Tech this week, believes the sluggish performance of the semiconductor sector is the reason behind the company’s woes.

Other sector bellwethers of the space have also reported weak quarterly earnings this week.

Pentamaster Corp Bhd, one of Malaysia’s big automated test equipment companies, saw both its top line and bottom line contracting by 23% and 32% year-on-year respectively and attributed this to ”a slowdown in the semiconductor and automotive sector.”

In its notes to the accounts, Pentamaster said that macroeconomic challenges and policy uncertainties are impacting the electric vehicle (EV) sector.

“The lack of clarity surrounding EV policies in key Western markets, which has unfortunately become one of the first geopolitical trade tools, has created confusion and hesitation among car manufacturers in their capital expenditures,” Pentamaster noted.

This soft outlook is expected to persist into the first half of 2025, with the group saying heightened volatility is expected from the renewed Trump administration, especially in sectors sensitive to trade and the global supply chain.

Over to Inari Amertron Bhd, the country’s largest outsourced semiconductor assembly and testing firm, the group fell short of expectations when its second-quarter (2Q25) earnings came in at only 42% of consensus estimates.

While the main culprit was forex fluctuations, Inari was also hurt by lower sales mainly in the automotive and industrial segments.

“The outlook of financial year 2026 (FY26) remains highly uncertain... the escalating geopolitical uncertainties, particularly the recent repeated threat of US tariffs, are concerning,” it said.

US-based AI-king Nvidia Corp’s earnings, released on Feb 26, seem to have alleviated investors’ concerns to a certain extent.

The group’s earnings both for its 4Q25 and the full FY25 beat Wall Street’s expectations.

However, the positive performance was met with muted reaction from investors.

The stock rose about 4% during regular trading ahead of its results on Wednesday, but fell by 1.5% in extended trading that evening. While Nvidia’s stock edged up 0.9% to US$132.50 in pre-market trading on Thursday, it slumped lower by 8.5% to close at US$120.15 that day.

A point to note is the decline in Nvidia’s gross margins in 4Q25, which fell to 73% versus 76% in 4Q24, due to a transition to more complex and expensive systems in its data centre division.

In fact, gross profit margins are expected to narrow more, as the firm ramps up the rollout of its AI chip, Blackwell, with the high costs of bringing the product to market weighing on profitability.

There is jitteriness among investors, especially of tech stocks. The Nasdaq index is down 4% year to date and 7% in the last five days alone.

Tradeview Capital CEO and founder Ng Zhu Hann notes that the sell-off in the US is overdue “as the market, especially the tech sector, is overheated. (Warren) Buffet also has been hoarding cash and reducing positions including his stake in Apple”.

Adds Ng, “Across the board, the AI tech theme drove the market last year and with (Donald) Trump introducing uncertainties and (Elon) Musk being boycotted, dragging down Tesla, a number of headwinds are happening all at once.”

Ch’ng Cheng Siew, chief investment officer at Areca Capital, has a more sanguine view.

“The outlook for the technology sector remains positive, with the World Semiconductor Trade Statistics forecasting an 11.2% increase in the global semiconductor market in 2025.

“This growth is primarily fuelled by advancements in AI, rising demand for high-performance computing, and substantial investments in semiconductor manufacturing capacity,” Ch’ng notes.

To Ch’ng, the entry of DeepSeek is positive. “With DeepSeek offering AI solutions at just one-tenth of the typical cost, semiconductor growth is expected to accelerate.

“This affordability is expected to drive widespread adoption in China and beyond, spurring a new wave of data centre expansions. As a result, our local semiconductor companies across the value chain stand to benefit.”

She cautions though that the non-AI semiconductor sectors remain muted due to excess stockpiles and subdued demand for products like smartphones and laptops.

“AI adoption will lead to the emergence of next-generation AI-powered innovations which will introduce more sophisticated AI-driven functionalities, potentially triggering a new replacement cycle in consumer electronics,” she notes.

She also expects the sluggish performance of the automotive semiconductor industry to bottom out this year.

“Major global players such as Infineon, STMicroelectronics, and Onsemi have indicated that the rate of decline has decelerated, and they project a gradual recovery as demand for EVs and hybrid vehicles accelerates, driven by technological advancements in the automotive sector.”

Be that as it may, Tradeview’s Hann, who says his fund began taking profit on US stocks last December already, does raise the prospect of a future tumble in the market especially for tech-related stocks.

“If there is no support from institutional players and retail investors get scared, the magnitude of the sell-off in tech will increase. To me it’s a normalisation or correction of an overheated sector.”