Asian tech firms showing slow but steady recovery led by demand for chips

Asian tech firms recover
An attendee wears a surgical mask during Samsung Galaxy Unpacked 2020 in San Francisco, California. February 11, 2020. REUTERS/Stephen Lam/Files

SHANGHAI/SEOUL (Reuters) – Smartphone sales in China are rising again as COVID-19 cases there decline and global demand for chips used in work-from-home networks is surging, positioning Asian tech firms for a slow but steady recovery, their early quarterly report cards showed.

Samsung Electronics guided on Tuesday to a better-than-expected first-quarter profit, as data centres stacked up on memory chips to deal with a rise in virtual meetings.

And Apple Inc supplier Foxconn reported on Monday a drop in March-quarter sales that was slightly smaller than it had first estimated.

As well, news that the number of new COVID-19 cases were receding in Europe and starting to plateau in some parts of the United States – big markets for Asian tech companies – fuelled gains in Asian shares on Tuesday. Mainland China reported a drop in new cases as well.

“Within Asia, developing signs of industry returning to work tell us that production in China will be the first part of the economy to lift off,” Stephen Innes, global chief market strategist at forex trader Axicorp, said in a note.

Shares in Samsung, also a maker of smartphones and TVs, rose 2% on Tuesday. Foxconn stock rose 1.4%.

LG Electronics shares jumped nearly 7% after the South Korean TV and phonemaker said operating profit likely soared 21% in the March quarter.

The pandemic, that has killed more than 74,000 people globally and infected over 1.32 million, has forced countries to curb travel and movement, pushed airlines to the brink and disrupted global supply chains.

But as work from home has surged, boosting demand for cloud services, so has the requirement for memory chips. This has allowed chipmakers such as Samsung to lower their high stockpile that squeezed prices for many quarters.

“The memory chip market is on the verge of a rebound … especially the server DRAM memory chip market is rebounding faster than expected following a downturn as data center customers are buying up memory chips to build up their infrastructures,” said Song Myeong-sup, an analyst at HI Investment & Securities.


Smartphone sales in China are also expected to edge up in the coming months as stores have reopened, and companies are hopeful of strong demand for 5G-enabled phones.

Chinese smartphone maker Xiaomi said last week it expects to see signs of a recovery in May.

Still, global demand for smartphones is likely to remain weak as countries reel from the economic impact of the virus, which could include millions of job losses.

In China, demand had begun to return in late February, but there were some supply problems, said Mo Jia who tracks the global smartphone sector at UK-based research firm Canalys.

“And then when the supply side was back up, overseas markets like Europe began to suffer,” he said.

Counterpoint Research estimates global smartphone sales fell 14% in February, and expects a steeper decline after that.

Samsung, which will report January-March results later this month, is expected a post a bigger hit to its mobile and consumer electronics sales.

Foxconn, which said last month it expected to resume normal production in China by the end of March, warned it does not expect to see any revenue growth in the first half of this year.

But the company, formally known as Hon Hai Precision Industry, told investors last week it can still get the latest 5G-enabled iPhones ready for an autumn launch, according to Bloomberg.

“Although we believe Hon Hai is not immune to the COVID-19 impact in the near term, we remain positive for its long-term margin uptrends,” Daiwa Capital Markets analysts wrote in a note, adding they expect the company’s margins to rise from the second half of 2020.

The Taiwanese contract electronics manufacturer had to shut factories in China where it assembles iPhones, leading Apple to say it was unlikely to meet its March-quarter sales guidance.

Related article here.

(Reporting by Josh Horwitz in Shanghai and Heekyong Yang in Seoul; Additional reporting by Hyunjoo Jin in Seoul and Geetha Panchaksharam in Bengaluru; Writing by Sayantani Ghosh; Editing by Muralikumar Anantharaman)

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