The semiconductor industry has been in the doldrums since late-2022.
There was a sharp surge in demand for microchips that occurred during the pandemic years of 2020 to 2022.
As demand normalised, global semiconductor sales decreased by 8.2% year on year to US$526.8 billion in 2023 after hitting a peak of US$574.1 billion in 2022, according to the Semiconductor Industry Association (SIA).
However, SIA reported that global semiconductor industry sales for February 2024 came in at US$46.2 billion, up 16% year on year which was the largest since May 2022.
This could be a sign that the slump is ending soon with a recovery poised to take place.
Here are four semiconductor stocks that you can consider to ride the upswing.
UMS Holdings Ltd (SGX: 558)
UMS Holdings provides equipment manufacturing and engineering services to original equipment manufacturers of semiconductors and related products.
The group reported a downbeat set of earnings for 2023 with revenue falling 19% year on year to S$299.9 million.
Net profit plummeted by 39% year on year to S$60 million.
Despite the weaker results, UMS’s free cash flow leapt up 29% year on year to S$50.1 million.
The manufacturing company also upped its final dividend from S$0.02 a year ago to S$0.022 for a 10% year-on-year increase.
CEO Andy Luong remained upbeat on the group’s prospects.
He noted that UMS’s diversification strategy bore fruit as the Aerospace division demonstrated robust growth that helped to mitigate the impact of the semiconductor downturn.
Meanwhile, the group also completed its new 300,000-square-foot production facility in Penang.
This new facility will focus on medium and large-format products, special processes, and the modular assembly of products for a new customer.
UMS’s key customers shared positive guidance in the coming months as witnessed by the surge in demand for artificial intelligence and the Internet of Things (IoT).
Venture Corporation Limited (SGX: V03)
Venture Corporation is a blue-chip electronic services provider serving customers in the life science, genomics, healthcare, networking, and test instrumentation sectors, among others.
For 2023, Venture saw revenue tumble 21.7% year on year to S$3 billion while net profit fell by nearly 27% year on year to S$270 million.
The group’s free cash flow, however, doubled year on year from S$236.4 million to S$473.9 million.
A final dividend of S$0.50 was declared and paid, bringing the total dividend for 2023 to S$0.75, unchanged from a year ago.
Venture continues to invest in building up its manufacturing and engineering capabilities and is also collaborating with many of its customers.
The group is also providing more products across the design, sourcing, manufacturing, and supply chain management process.
At the same time, Venture is creating advanced modules to improve product performance to add value to its customers.
Micro-Mechanics (Holdings) Ltd (SGX: 5DD)
Micro-Mechanics (Holdings), or MMH, designs, manufactures and markets high-precision parts and tools for the wafer fabrication and assembly processes of the semiconductor industry.
Like UMS and Venture, MMH also reported a downbeat set of earnings in line with the semiconductor sector’s slump.
For the first half of fiscal 2024 (1H FY2024) ending 31 December 2023, revenue fell 20.5% year on year to S$29.4 million.
Operating profit tumbled 27.1% year on year to S$6.2 million with net profit falling by a third year on year to S$4.1 million.
Free cash flow declined by nearly 42% year on year to S$5.7 million.
The group also slashed its dividend by 50% from S$0.06 a year ago to S$0.03.
While waiting for the recovery, MMH is restructuring its US division to eliminate operating costs.
It is also implementing its “five-star factory” initiative to increase productivity in its manufacturing plants, develop high-performance teams, and be more responsive to customers in solving their problems.
AEM Holdings (SGX: AWX)
AEM provides semiconductor and electronics test solutions to its customers and has manufacturing plants located in Singapore, Malaysia, Indonesia, Vietnam, China, South Korea, the US, and Finland.
AEM reported a weak set of results as it was hit by both an arbitration settlement and a write-down in inventory values due to a discovered shortfall.
Revenue plunged by 44.7% year on year to S$481.3 million for 2023.
The group reported a net loss of S$1.2 million, a sharp reversal from the net profit of S$127.3 million in 2022.
Profit before tax excluding exceptional items, however, would have been S$38.3 million, still significantly down from the prior year’s S$158.7 million.
The business did, however, generate a positive free cash flow of S$14.9 million for 2023.
No dividend was declared for 2023 but AEM decided to announce a 1-for-100 bonus share issue to reflect confidence in its future.
AEM believes that revenue from new test insertion wins will drive a more than fivefold increase in group revenue to triple-digit millions by 2025.
CEO Chandran Nair sees an uncertain pace of recovery but is confident that AEM will benefit from the trend of higher test intensity and increased test complexity.
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Disclosure: Royston Yang owns shares of Micro-Mechanics (Holdings).
