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Singapore Investment


No Apple's Broadcom-cut effect on Malaysia's  INARI 0166 INARI AMERTRON BERHAD

Inari Amertron Bhd’s outsourced semiconductor assembly and test (OSAT) business is unlikely to be affected by Apple’s move to cut its dependency on Broadcom-supplied chips.

KUALA LUMPUR: Inari Amertron Bhd's outsourced semiconductor assembly and test (OSAT) business is unlikely to be affected by Apple's move to cut its dependency on Broadcom-supplied chips.

Public Investment Bank Bhd (PublicInvest) said the tech company was planning to swap out Broadcom-supplied chips used for Bluetooth and WiFi by 2024 and replace them with chips developed internally.

The iPhone maker is currently working on a proprietary cellular 5G modem chip that was expected to replace the Qualcomm chips in the next two years.

"Apart from seeing some cost savings, we believe the move would also give them greater flexibility and control to design their products.

"For Inari, we believe its OSAT business is unlikely to be affected given its cost advantage and long establishment in the OSAT industry," PublicInvest said today.

In the event Apple successfully developed all types of chips required by its devices, PublicInvest said its back-of-the-envelope calculations showed that the Inari's direct exposure to the world leading smartphone maker revenue was only 17 per cent-18 per cent given that Apple contributed about 20 per cent to Broadcom's annual revenue.

At current share price, it viewed that the negative news flow had been fully priced in.

"Alternatively, Apple could directly outsource its assembling and testing jobs to the usual outsourced semiconductor assembly and test (OSAT) partners given the efficiency and size, cost advantage and reliable track record.

"We think the chances for Apple to expand into the OSAT area are low given the high operating cost structure in the US," it said.

To reduce its high dependency on one single customer, Inari has initiated moves to diversify its revenue stream.

It has established a joint-venture with China Fortune Tech Capital to set up a radio-frequency assembly business in YiWu, Zhejiang.

The commercial operations are expected to kick start by the second half of 2023.

It also has collaboration with Singapore-based MIT Semiconductor Pte Ltd to provide customised semiconductor process tools and solutions at P21 plant.

This is expected to contribute annual revenue of RM100 million.

"Inari remains one of our top picks for technology sector. We expect to see higher utilisation rate for the radio frequency (RF) segment in the upcoming quarter, led by better sales mix with new phone cycle, which requires a longer testing period due to higher RF content value.

"Management is also bullish on its RF growth outlook in financial year24 on the back of RF content value growth and new design wins such as RF double-side moulding system-in-package assembly for next generation smartphones.

"We think it is a good opportunity to collect Inari shares in anticipation of the bullish outlook," PublicInvest said.

The firm kept its "Outperform" call on Inari with an unchanged target price of RM3.74.


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