Staying tech-tical over tariffs

THE dark clouds have parted and Malaysia’s semiconductor industry can breath again, but the skies are not entirely clear.

The United States’ tariff exemptions for the industry have sparked cautious optimism, though most analysts have been quick to temper expectations.

As the geopolitical chess games continues, investors and industry players alike are treading carefully.

After weeks of threats and counter-threats, the US government decided to grant broad-based tariff exemptions on technology (tech) and electronic goods – including semiconductors, smartphones, laptops, and manufacturing tools - giving the local tech sector a shot in the arm.

The US Customs and Border Protection’s exemption list covers 20 product categories, shielding them from the sweeping 125% tariff on Chinese imports and the 10% base tariff – for now – on imports from countries like Malaysia, Singapore, South Korea, and Japan.

“Finally, there is some cheer for local tech stocks, with the exemptions for most of the tech and electronic products,” Public Investment Bank (PIVB) Research said.

The research house notes that these developments ease fears about global supply chain disruptions, especially for producers previously pressured to diversify production.

“Most of the local technology products and their end customer products are also on the exemption list,” it adds.

Despite the upbeat tone, PIVB cautions that the optimism may be fleeting.

US President Donald Trump’s administration could yet introduce a new list of semiconductor product-specified tariffs targeting certain rivals, it says, maintaining its “overweight” rating on the sector.

The challenge of reshoring chip production to the United States remains formidable, it notes, pointing out that it may take years due to the challenges in sourcing skilled workers and the lack of advanced tooling.

There are also higher labour costs, which make the production yield uncompetitive.

Indeed, Trump has already suggested that these exemptions may be “partially or completely reversed in coming weeks”, according to PIVB Research, making the current window of relief a potentially narrow one.

Cautious tone

Maybank Investment Bank Research (Maybank IB) strikes a similarly measured tone.

While acknowledging the exemptions as a “short-term positive”, it keeps its “neutral” stance on the sector.

“We expect short-term positive share price reaction for Inari Amertron Bhd, as the new exemptions allay demand destruction risks for Apple,” it says.

Frontken Corp Bhd remains its top pick, for its secular exposure to front-end industry growth amid the artificial intelligence (AI) revolution.

Still, Maybank IB highlights key blind spots.

“Notably, back-end test equipment have not been exempted and will be subject to the 10% reciprocal tariff rate,” it says.

That is likely to impact Malaysian automated test equipment/factory automation systems players such as ViTrox Corp Bhd, Genetec Technology Bhd, and Greatech Technology Bhd, which derive significant revenue from the US market.

Hong Leong Investment Bank (HLIB) Research sees the latest development as an opportunity for a short rally, especially given how badly some counters have been hit since the tariff saga began on April 2.

“Notable laggards include UWC Bhd, Greatech, Pentamaster Corp Bhd, Inari, Frontken and ViTrox,” it notes.

These companies, many of them tied to the smartphone and equipment segments, bore the brunt of market anxiety.

But even as the United States loosens its grip, China has tightened its own rules.

HLIB Research highlights a change in how China determines the origin of imported chips – now based on fabrication site rather than design or packaging origin.

“This change strategically benefits US fabless chip designers such as AMD, Nvidia, and Qualcomm.. but will penalise integrated device manufacturers such as Intel, Texas Instruments, Analog Devices, and GlobalFoundries,” it highlights.

This nuanced change has ripple effects, even for Malaysian players.

“For example, we understand Broadcom manufactures its Radio Frequency (RF) Film Bulk Acoustic Resonator filters at its Fort Collins, Colorado fab before sending them to Malaysia for packaging and final testing,” HLIB Research points out.

With China’s 125% tariff applying based on US fabrication, Inari – whose RF segment contributes 60% to 70% of sales – may face pressure.

HLIB Research notes: “We estimate the RF front-end subsystem to constitute only 5% to 7% of the total bill-of-materials for the iPhone... cost increases, though not ideal, would likely remain manageable.”

For now, HLIB Research is keeping its “neutral” view, but it suggests a tactical rally may be in play.

“We continue to be cautious on the sector, given also mixed fundamentals over the short to mid-term,” it states.

The research house’s top picks include ITMAX System Bhd and SMRT Holdings Bhd, citing their stronger domestic focus and less exposure to the global policy storm.

TA Research is more optimistic. “The research house is positive on news of the tariff exemptions, as it provides temporary relief for local tech players.

It is maintaining its “overweight” stance, with “buy” calls on Inari, Unisem (M) Bhd, Malaysian Pacific Industries Bhd and Elsoft Research Bhd.

On the domestic front, TA Research points to structural positives that may insulate Malaysia’s semiconductor sector from global tremors.

“The escalating trade tensions between the United States and China could lead to greater trade diversion opportunities for Malaysia under the China Plus One strategy,” it says, adding that the National Semiconductor Strategy could help Malaysia move up the value chain in the global semiconductor industry.

Encouraging sales

Meanwhile, global fundamentals remain encouraging. According to the Semiconductor Industry Association, global semiconductor sales in February 2025 stood at US$54.9bil, a 17.1% year-on-year jump despite a mild 2.9% monthly dip.

The Americas led growth with a 48.4% increase.

The gains were primarily fuelled by demand for logic and memory products, boosted by the surge in generative AI applications.

TA Research believes the slight slowdown was “partly due to slower growth in consumer and automotive segments”, but sees the broader trajectory as intact.

In sum, Malaysia’s semiconductor sector finds itself momentarily in the sun, thanks to temporary tariff reprieves and resilient global demand.

But with political uncertainty, retaliatory trade moves, and policy flip-flops still in the air, the rally could be more a sprint than marathon.

Investors, like the chipmakers themselves, may have to stay agile.

Malaysia must continue navigating a rapidly shifting landscape – with one eye on Washington and the other on Beijing.