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In Malaysia, AmInvestment Bank said Inari Amertron Bhd might face a weaker second half of the financial year 2020 due to the uncertainties related to Apple, its major end customer, which is tied to its radio frequency (RF) segment. This is 49% of the group’s revenue.

PETALING JAYA: As China still grapples with its logistics after the extended Chinese New Year break due to the coronavirus disease (Covid-19) outbreak, technology and electronics manufacturing services (EMS) players might run into risks of potential delays in production which would affect their revenues.

Factories in China had just jumped back to work a week ago after the end of the extended closure on Feb 10 but most of them extended the break further until Feb 14.

And even with most of the plants resuming operations, they are still far below their operating capacities due to a labour shortage.

Foxconn for example, only has around 10% of its workforce in two of its main factories in China after obtaining a reopening approval on Monday.

Reuters reported that only 16,000 people had returned to one of the plants in Zhengzhou, which was less than 10% of the workforce.

Another plant in Shenzhen saw the return of 20,000 workers, which was about 10% of the workforce there.

Taiwan-based Foxconn is the world’s largest electronic contract manufacturer and its two plants in Zhengzhou and Shenzhen, according to AmInvestment Bank Research, are critical production sites of Apple Inc’s current flagships, the iPhone 11 series, its successor and the rumoured successor to the iPhone SE.

The other key supplier to Apple is Pegatron, whose plants in Shanghai and Kushan also produce iPhones.

Apple said in a statement on Monday that it did not expect to meet its revenue guidance for its second quarter ending March 31 of between US$63bil (RM261.48bil) and US$67bil due to the temporary constrain in iPhone supply and the lower demand for Apple products within China.

“Work is starting to resume around the country (China) but we are experiencing a slower return to normal conditions than we had anticipated, ” the Cupertino-based tech giant said, although stressing that the health and well-being of every worker is their paramount priority.

In Malaysia, AmInvestment Bank said INARI AMERTRON BHD might face a weaker second half of the financial year 2020 due to the uncertainties related to Apple, its major end customer, which is tied to its radio frequency (RF) segment. This is 49% of the group’s revenue.

It added that if the Covid-19 impact did not extend beyond the second quarter of calendar year 2020 and Apple’s 5G-enabled iPhones are released as scheduled, Inari’s RF demand for financial year 2021 is anticipated to be strong.

Another analyst said EMS players like Foxconn and Pegatron are suffering because of their high labour content.

As far as Malaysian players are concerned, he said they were not severely impacted by Covid-19 nor were there any indications to conclude as such yet.

“At component levels, there are hardly any delays because the reliance on automation is high. The first quarter is seasonally a weak quarter anyway. Maybe that’s why they didn’t seem too concerned.

“I guess the next thing to look forward to is if Apple will delay the launch of the iPhone SE2, ” he said.

The iPhone SE2, which is also dubbed the iPhone 9, is the long-awaited successor of the iPhone SE that was released in March 2016, to provide consumers with a more affordable version of the iPhone.

Industry observers said it was initially planned for release on March 31, alongside other updated products such as the iPad and the MacBook line-up.

Apple is said to have an event on that date but it is unsure if this would still be the case.

This is one of Apple’s annual side events other than its yearly special event in September where Apple announces the new line-ups of its flagship iPhones and the Apple Watch.

AmInvestment Bank maintained its “neutral” rating on the technology sector and “overweight” on EMS because while the long-term prospects remain intact, short-term risks related to the global supply chain due to Covid-19 has caused uncertainties on the performance of semiconductor players.

It said most companies were adopting a wait-and-see approach and have not yet guided for any earnings impact, depending on whether the Covid-19 outbreak impact extended beyond March.

“Companies with operations in China and those with a heavier dependency on end customers which have factories in China would be affected the most, while others such as EMS players are indirectly impacted through supply chain risks, ” the research house said, adding that it did not see the need to revise earnings for EMS players yet as both VS Industry Bhd and ATA IMS Bhd have enough inventory for another month.

Both companies import 30% of raw materials from China.

Bursa Malaysia’s technology index closed 1.02% or 0.41 points higher at 40.51 points yesterday. There were 13 gainers, 10 laggards and 15 counters unchanged.

The research house also pointed out the impact on the global automotive industry which China recorded 18% lower sales year-on-year (y-o-y) to 1.94 million units in January while sales of new-energy vehicle declined 54% y-o-y.

In Europe, the passenger car market contracted 7.5% y-o-y to 967,000 units due to taxation changes by some European Union member states, weakening global conditions and Brexit uncertainties.

The United States saw a 1% increase to 16.8 million last month amid healthy consumer sentiment, low unemployment and available credit.

AmInvestment Bank said it did not rule out a downward earnings revision for Malaysian Pacific Industries Bhd. The group’s exposure to China is about 30% of its revenue while its automotive products tied to revenue in the first quarter of financial year 2020 was 32%.

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