Fitch Ratings says APAC chip makers to ride out market downturn

Rising demand for higher quality devices will support bit shipment growth in memory chips this year.

Semiconductor companies in Asia Pacific are likely to keep their credit profiles intact even as the memory chip industry is grappling with a cyclical downturn globally, according to Fitch Ratings. 

Fitch forecasted bit shipments in memory chips to rise further this year despite headwinds brought about by a slowing global economy and the falling demand for devices post pandemic. The chip industry has also been reeling from the US limiting China’s access to advanced chip-making technologies, it said.

“Rising semiconductor content in smartphones, personal computers and other electronic devices will support demand growth, despite the currently sluggish demand for these products,” it said in a note dated 24 May. “Consumers increasingly prefer to buy smartphones with higher memory and personal computers with higher specifications, requiring greater memory content.” 

For some of APAC’s major chip companies, Fitch sees Japan’s Renesas Electronics Corp navigating the downturn better than its peers as the steady demand from automotive chips may mitigate weak sales in consumer-related segments. The agency gave a positive outlook on the chipmaker which it expects to deliver robust margins and free cash flow while keeping debt levels sustainable.

It also forecasts a moderate impact on ASE Technology Holding Co., a Taiwan-based outsourced semiconductor assembly and testing provider, largely thanks to the improving pricing environment in the segment. Fitch said the firm will still see its profitability slide this year before rebounding in 2024.

Across the industry, Fitch sees chip demand for consumer devices hurting the sector’s cash flow in the short term as smartphone and personal computer shipments will likely drop by a single-digit percentage this year. 

The dynamic random-access memory (DRAM) market is also seen posting a steep drop in operating cash generation this year due to falling prices, before memory prices fully recover in 2024.

“Weak device demand amid high inflation will keep inventory levels high until at least end-1H23 before normalising towards end-2023 when demand and supply imbalances ease as major companies cut production,” it said.