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Business Times
4 days ago
- Business
- Business Times
AI demand drives chip equipment sales forecast to new highs but tariff jitters cloud outlook
[SINGAPORE] Fuelled by the explosive demand for artificial intelligence (AI), global semiconductor manufacturing is poised for growth, with equipment sales projected to hit a record US$121 billion this year – surpassing last year's high – even as geopolitical tensions loom large. While high-end AI models continue to push demand for more powerful and efficient chips, there is also growing interest in low-power AI semiconductors from global firms looking to integrate AI into everyday operations, said Alvin Nguyen, senior analyst at Forrester. 'Generative AI is an obvious driver of semiconductor growth,' he noted, adding that demand is also rising for chips used in Internet of Things (IoT) and edge computing devices. Industry group Semiconductor Equipment and Materials International (Semi), similarly expects long-term semiconductor equipment demand to be driven by advances in AI-related technologies. Global sales of semiconductor manufacturing equipment by original equipment manufacturers did better than expected, increasing 10 per cent to US$117.1 billion in 2024. That momentum is expected to continue, with sales forecast to rise to US$121 billion in 2025, and further to US$139 billion by 2026, driven by growth across both front-end and back-end segments. The front-end segment typically includes the wafer fabrication stage, while the back-end segment refers to assembly, packaging and testing. BT in your inbox Start and end each day with the latest news stories and analyses delivered straight to your inbox. Sign Up Sign Up In Singapore, industry players see AI as a long-term catalyst, with demand expected to remain strong across multiple application areas. Executive director Ang Wee Seng of the Singapore Semiconductor Industry Association (SSIA) expects AI-related demand to remain robust over the next one to two years, led by investments in data centres, edge computing and generative AI applications. 'This structural growth is creating new requirements across the value chain, from chips to cooling systems, and will continue to be a strong driver for the industry,' said Ang, adding that equipment manufacturers should expect a moderate rebound in demand by mid-2025. Ang noted, however, that the industry is still working through the tail-end of the 2023 oversupply. While inventory levels are improving and demand is picking up in consumer electronics, automotive and industrial segments, the recovery remains uneven across markets. He also flagged that Asean-based suppliers could face pressures from the recalibration of the US trade policies, underscoring the importance of diversification and regional collaboration. Similarly, Forrester's Nguyen pointed to the uncertainty created by tariffs, which have delayed investment decisions by some semiconductor players. Big plus for smaller players Smaller players such as Grand Venture Technology (GVT) and Frencken Group are well-positioned to ride the AI-driven wave, said SSIA's Ang, provided they remain agile and responsive to fast-evolving customer needs, such as precision components for advanced packaging and AI accelerators. However, their smaller scale also makes them more vulnerable to tariff shifts. In this environment, supply chain resilience and broader regional market access will be critical to weathering the challenges ahead. Conversely, Nguyen from Forrester explained that these companies may also benefit from supply chain impacts as the larger manufacturers look for alternative partners to simplify their supply chain logistics and lower overall risk. Both GVT and Frencken Group made it to the 2025 edition of RHB's Top 20 Small Cap Jewels report, which highlights high-potential small-cap companies in Singapore. Analysts from RHB and DBS are sanguine about the prospects of Frencken Group, which saw net profit rise 12 per cent to S$10 million in the first quarter of FY2025. RHB analyst Alfie Yeo expects Frencken Group's outlook for the remainder of the first half to remain stable, with growth likely to continue despite tariff-related headwinds. In fact, Yeo expects minimal tariff impact, since the group's exposure to the US is relatively small, and the tariffs primarily affect its customers rather than the company itself. The group's sales to a key customer in Europe, along with a rebound in Asian demand helped boost the semiconductor segment revenue of its mechatronics division by 33.7 per cent to S$106.2 million. This in turn drove revenue higher to S$215.8 million – up 11.5 per cent from the corresponding year-ago period. Yeo said that the house remained 'upbeat on Frencken Group on the back of the growth in its semiconductor and medical segments' and maintained its recommendation of 'buy', with a target price of S$1.48. DBS analyst Ling Lee Keng also maintained her 'buy' recommendation on the group, adding that its expansion in its front-end equipment is set to boost revenue. Ling mentioned that global industry association Semi expects the demand rebound to be accompanied by new highs in wafer shipments and surges in demand for silicon, supporting AI and various industrial applications. However, though the upward trend can remain intact, Ling also sees a slower momentum in growth, citing cautious market sentiments as 'pickings are likely to be harder after the low-hanging fruits dwindle'. She also maintains a 'buy' recommendation for semiconductor player GVT, which reported a 96.4 per cent jump in earnings to S$10.9 million for FY2024 from a year ago, beating DBS' estimates. Revenue grew 43.3 per cent to S$159.5 million, more than half of which came from the semiconductor segment. For the first half of 2025, DBS projected that GVT could post year-on-year revenue growth of 31.7 to 40.5 per cent, reaching between S$90 million and S$96 million on the back of rising demand for AI-related and complexity-driven equipment sales. The equipment maker is aiming to move up the value chain by upgrading its facilities with advanced semiconductor manufacturing technologies. Its acquisition of ACP Metal Finishing has also helped stabilise and diversify its customer base, Yeo noted. He also observed that GVT would have minimal impact from US tariffs, with less than 10 per cent exposure to them in FY2024. GVT's key customers are in the Asia and Europe markets. 'I think these companies are on the right track and working with the right semiconductor customers who are involved in the AI chip supply chain,' said Maybank analyst Jarick Seet. Asean will stay a key player in the global semiconductor supply chain, and trying to recreate what it has even briefly in the US won't be easy, he said. Still, Seet cautioned that no single trend can carry the industry. The semiconductor market's long-term success will hinge on sustained demand across a range of sectors.
The Guardian
26-02-2025
- Business
- The Guardian
Nvidia to report first earnings since shock debut of Chinese AI DeepSeek
Nvidia will deliver its earnings report for the fourth quarter of 2024 Wednesday evening, which investors will be watching closely for any signs of slowing demand for semiconductor chips. The chipmaker's financials will face scrutiny over possible signals of an end to the AI-fueled market boom that has propelled the company to a stratospheric valuation of $3.1tn. Analysts expect Nvidia to maintain its leadership position as the maker of the AI industry's favorite chips, but recent news has presented new potential challenges to the company's ownership of the market. For one, analysts at TD Cowen published findings earlier in the week that Microsoft, one of Nvidia's biggest customers, was cancelling leases with private data center operators. Investors expressed concerns about the sustainability of mass investment into AI infrastructure, including Microsoft's $80bn, which would mean less spending on Nvidia's wares. This earnings call will also be the first look at the company's financials and demand since China's DeepSeek AI introduced an AI model that beat many of those made in the US while requiring a fraction of the training and investment. The introduction of DeepSeek initially sent Nvidia's valuation tumbling by hundreds of billions because the Chinese AI seemed to show that new models did not necessarily need to rely on Nvidia's most expensive, top-of-the-line graphics processing unit (GPU), as most cutting-edge models out of the US do. Sign up to TechScape A weekly dive in to how technology is shaping our lives after newsletter promotion Despite the company's past stellar performance, analysts expect investors to look for other signs that the company will be capable of meeting the moment as demand for the chips that power AI models remains steady. 'The key question for Nvidia's Q4 earnings isn't just about the numbers, but whether the company can maintain its commanding position as AI evolves,' said Jacob Bourne, a technology analyst at eMarketer. 'Even if Nvidia posts another quarter of stellar growth, the market reaction will depend on how well it can convince investors that it can tackle these challenges.' Some analysts predict the ripples from DeepSeek's launch may not have an immediate impact on Nvidia but could allow competitors like AMD and Intel to 'gain a foothold on the lower end of the AI infrastructure market', said Alvin Nguyen, a senior analyst at Forrester. 'DeepSeek has established a new and lower base of performance for generative AI (specifically for chain-of-thought/reasoning models), allowing for more organisations to experiment with AI,' Nguyen added.
