Singapore semiconductor firms exposed to planned US tariff, but impact may vary: analysts
On Thursday, Trump announced that he will impose a 100 per cent levy on imports that include semiconductors, though companies that have 'committed to build' in the US will be exempted.
Frencken Group , which is a supplier to the semiconductor industry, will be indirectly exposed through its largest customers ASML and Applied Materials, said CGS International Singapore analyst William Tng.
Frencken in June announced plans to invest S$63 million in a new and larger manufacturing facility in Singapore.
' AEM is more directly impacted as it ships to Intel, and Intel's main test and assembly is outside the US,' noted Tng. 'At the same time, Intel has invested in the US, so there seems to be room to negotiate.'
On Thursday, Trump also urged Intel chief executive Tan Lip-Bu to resign immediately in a social media post due to so-called conflicts of interest, further intensifying pressure on the semiconductor giant.
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The shares of a slew of semiconductor companies in Singapore fell on Friday . UMS Integration was down 2.6 per cent, Frencken declined 2.4 per cent and AEM lost 3.2 per cent.
It is not all negative news, however. Tng said that the impact could be mitigated by the tiered or gradual implementation of the semiconductor levy. He added that Frencken remains a 'top pick' in Singapore's tech rally.
Frencken was also retained in UOB Kay Hian's alpha picks portfolio for August. The brokerage firm's portfolio in July had considerably outperformed the Straits Times Index, even with the looming announcement of the sectoral tariffs.
Morningstar analyst Phelix Lee said that the firm is 'net bullish' on GlobalFoundries, as it already has manufacturing capabilities in the US. The semiconductor company has multiple facilities in Singapore as well.
The case for United Microelectronics Corp is 'a bit more nuanced as (its) partnership with Intel will not begin production at least until 2027', added Lee.
In response to a query from The Business Times, Ang Wee Seng, executive director of the Singapore Semiconductor Industry Association, said: 'Any significant trade action involving semiconductors will inevitably have far-reaching impact.'
He added: 'This is a highly globalised industry, with complex and interdependent supply chains spanning across Asia and the world. Such a proposal, if enacted, could influence cost structures, supply strategies and long-term investment flows globally.'
However, Ang said that it was too early to determine the specific impact on semiconductor firms in Singapore, saying that the industry will need to wait for the full details of the announcement to understand its scope and potential implications.
Another industry insider, who declined to be named, pointed out that the impact of the tariff on the sector may not be uniform across the different Singapore-based semiconductor companies, which may be involved in making chips, performing assembly and test services, or supplying capital equipment.
'As result of the tariff, the cost of semiconductors may go up globally, and that may also increase (the) cost of equipment as highly automated machines use (a) very significant amount of semiconductors,' he said, using motion control systems as an example.
Share of companies that already have facilities or investments in the US or plan to, went up shortly after market open on Friday.
In South Korea, shares of Samsung and SK Hynix rose 2.6 and 1.5 per cent, respectively. At the end of the trading day, Samsung was 1.8 per cent up, while SK Hynix had declined 2.1 per cent. SK Hynix had last year announced a chip packaging facility in the US, while Samsung has chipmaking facilities in the country and has committed to investments.
Shares of TSMC, the world's biggest chipmaker, advanced to a record high on Thursday. A Taiwanese official said that the firm is exempted from the chip tariff because it has set up plants in the US, according to Bloomberg.
Lee posited that the semiconductor tariff could be negotiated, in line with Trump's strategy of 'open high, negotiate down', and that the final figures could be similar to reciprocal tariffs to limit inflation in consumer goods.
The worst-case scenario of the levy could be some destruction of demand, added Tng, which will result in a need for further technological innovation demand.
Ang noted: 'At a broader level, this underlines the growing need for stronger regional and global partnerships, supply chain resilience, and forward-looking strategies.'
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