Asia Technology Sector:Key takeaways from 2017SEMICON Taiwan

Search for next growth driver is ongoing: We attended the 2017 SEMICONTaiwan hosted by global industry association SEMI last week. Speakers at theMarket Trends forum mainly focused on the near-term prospects of the global techindustry and their expectations for the next growth driver. In the near term, speakersexpected the focus to remain on smartphones, while investment focuses on theespecially strong memory demand and ongoing expansion of auto electronics anddata centre. Looking into the longer term, speakered highlighted growth in AI, highperformance computing (HPC), and robotics as the major drivers of semi content.

    Power and compound semis: Given consolidation within pure Silicon is quite clear,we were more attracted by Power and Compound Semi’s given this segment’spositive outlook, given potential demand from 5G/VCSEL/Power/Automotive/IoT,despite the still-evolving industry dynamics. During the forum, speakers focused onthe current developments of GaAs, GaN, and Silicon-based compounds and uses invarious applications. While there were some debates as to whether Silicon-basedcompounds could be a good substitute for III-V compounds in specific applications,consensus remains positive given a growing need for high power density andoperation efficiency systems. Speakers also highlighted key trends they expect tosee as we head closer to 5G, including: (1) pre-standard in 2018, commercial launchin 2019/2020, and mass adoption by 2025; (2) adoption of MIMO (Multi-in/Multi-out)to boost capacity/switching and temperature capabilities, reduce interference, andfacilitate more machine communication among IoT devices; and (3) deployment ofbase stations/small cells in enabling millimetre radio waves.

    Beneficiaries within the Taiwan tech universe: Within HSBC’s Taiwan techuniverse, key beneficiaries of the AI and HPC themes include TSMC (2330.TW;TWD219.5; Hold), Mediatek (2454.TW; TWD292.5; Buy), and Kinsus (3189.TW;TWD78.6; Buy). Key beneficiaries of the Power and 5G themes include Kinsus,Vanguard (5347.TW; TWD54.4; Reduce), Mediatek, Landmark (3081.TW;TWD410.5; Buy), and Win Semi (3105.TW; TWD194.5; Hold).

    Other Taiwan names with exposures to these themes, which are not rated by HSBC,include AWSC (8086.TW; TWD56.7), RichWave (4968.TW; TWD114.0), VPEC(2455.TW; TP59.2), EMC (2383.TW; TWD140.5), TUC (6274.TW; TWD83.5), eLaser(3450.TW; TWD112.5), PCL (4977.TW; TWD138.0), GCL (4991.TW; TWD67.9), andWavetek (3550.TW; TWD16.25).