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Singapore Investment

 INARI 0166 INARI AMERTRON BERHAD’s share price down over 4% as Apple plans to drop Broadcom chip from devices

KUALA LUMPUR (Jan 10): Shares in Inari Amertron Bhd fell as much as 13 sen or 4.6% to RM2.67 in morning trade on Tuesday (Jan 10), after consumer electronics giant Apple Inc reportedly plan to drop Broadcom Inc's chip from its devices, replacing the key chip with an in-house design by 2025.

Citing people familiar with the matter, Bloomberg News reported on Tuesday that Apple plans to replace Broadcom's Wi-Fi and Bluetooth chip.

Broadcom, however, also supplies other components to Apple — including radio-frequency (RF) chips and ones that handle wireless charging — though the iPhone maker has been working on customising those parts as well.

Nevertheless, Stacy Rasgon, an analyst with financial services firm AB Bernstein, told Reuters that Apple's decision is still likely to hit Broadcom's revenue by about US$1 billion (RM4.37 billion) to US$1.5 billion.

But Rasgon stressed that Broadcom's RF chips are complex to design and manufacture, and therefore, replacement is unlikely in the short term.

A channel check showed that Inari’s exposure to Broadcom's business is more on RF chips.

Over the past 12 months, Inari has seen its share price drop RM1.08 or 29%. The country's largest outsourced semiconductor assembly and testing player has a market capitalisation of close to RM10 billion.

The company currently trades at a price-earnings ratio of 25.62 times, and offers a dividend yield of 3.64%.

It is an open secret that Inari is heavily dependent on US fabless chip designer Broadcom, which is a key component supplier to Apple.

For perspective, Singapore remains Inari’s largest geographical market, accounting for 86% of the group’s revenue for the financial year ended June 30, 2022 (FY2022), followed by China (8%) and Malaysia (5%).

The Edge Malaysia weekly in its Sept 12-18, 2022 issue reported that most market watchers generally assume that a large portion of Inari's Singapore revenue actually comes from Broadcom, which operates its Asean sales office in the city state.

Notably, Apple is Broadcom's largest customer, accounting for about 20% of the chip maker's revenue for the last fiscal year, which totalled nearly US$7 billion.

Inari's profits have almost matched those of the two US tech heavyweights over the past five years.

To illustrate, Inari's profits grew at a compound annual growth rate of 13% between FY2017 and FY2022, compared with Apple's 16% and Broadcom's 32%.

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