CIMB Securities said Tuesday it believes the ongoing conflict in the Middle East will have minimal direct impact on the regional tech sector given the region’s limited semiconductor manufacturing footprint.
“That said, Israel remains an important semiconductor research and development (R&D) hub for major global technology players, and any escalation could indirectly affect innovation pipelines,” the research house said in a note.
CIMB opined that if the conflict persists over an extended period, the industry may face higher energy and logistics costs, as well as potential disruptions in semiconductor fabrication.
Cited Reuters, it highlighted that South Korea’s industry ministry highlighted the country’s reliance on the Middle East for materials such as helium, bromine, and chip inspection equipment; however, it also noted that these materials can be sourced domestically or from alternative markets.
Meanwhile, CIMB said cloud service providers (CSPs) with data center projects in the region may need to reassess their artificial intelligence (AI)-related investments.
Cited CNBC, it noted some Amazon Web Services (AWS) data centers have already been damaged by drone strikes, raising concerns about infrastructure security.
“A slowdown in AI data center build-outs could translate into softer demand for AI chips,” said the research house.
Overall, CIMB maintained its Neutral rating for Malaysia’s technology sector.
“That said, we expect more robust performance in 2026 as tariff impacts become clearer and supply-demand conditions continue normalizing, supporting gradual inventory replenishment across consumer, industrial, and automotive applications,” said the research house.
CIMB expects the Malaysian tech sector to deliver average revenue growth of 9 percent over 2026 to 2027 (versus +2 percent in 2025), underpinned by a broad-based recovery across the outsourced semiconductor assembly and test (OSAT), electronics manufacturing service (EMS), and automated test equipment (ATE) sub-sectors.
The ATE sub-sector is poised to lead with a projected 30 percent year on year net profit compound annual growth rate (CAGR), followed by EMS (+25 percent) and OSAT (+23 percent) sub-sectors.
“Overall, we forecast the tech sector to achieve a two-year (2025 to 2027) core net profit CAGR of 25 percent,” said CIMB.
According to the research house, the sector’s key downside risks include MYR appreciation against the USD, which it forecasts assume an exchange rate of MYR 3.90 to MYR 4.00/US$1 for 2026.
“According to our estimates, OSAT players are the most sensitive to foreign exchange (forex) movements — every 10 percent appreciation in the MYR could reduce earnings by 30 percent to 40 percent on average for companies under our coverage,” it said.
EMS players, however, are the least affected given their cost passthrough mechanisms, which allow currency movements to be largely passed on to customers, it added.
Overall, the Malaysian tech sector reported a 13.5 percent year on year decline in core net profit in the fourth quarter of 2025.
CIMB said the results continue to reflect significant forex headwinds and rising material costs, partially cushioned by resilient AI‑driven demand.
It is noted for the first quarter of 2026, the top 20 semiconductor players are guiding for about 8.6 percent quarter on quarter sales growth, driven primarily by memory manufacturers, which are projecting over 30 percent quarter on quarter growth.
However, excluding memory players, Nvidia, and Broadcom, the sector’s outlook reflects a 3 percent to 4 percent quarter on quarter decline in sales during the March quarter, consistent with the seasonally shorter period and post‑holiday demand slowdown.
Still, several integrated device manufacturers (IDMs) — including ADI, Renesas, and Infineon — are guiding for sequential quarter on quarter improvements, supported by recovering industrial demand and sustained AI-related strength.
“The surge in AI demand is also tightening supply for other markets, as memory makers divert capacity towards AI applications, leaving the personal computer (PC) and smartphone segments short of supply,” said CIMB.
As a result, Intel is guiding for an about 11 percent quarter on quarter sales decline, while mobile chipmakers Qualcomm and MediaTek expect single‑digit quarter on quarter declines partially as a result of memory shortages.
Meanwhile, the global semiconductor market surged to a record $791.7 billion in 2025, up 25.6 percent year on year, with the fourth quarter of 2025 sales jumping 37.1 percent year on year and 13.6 percent quarter on quarter, driven by powerful momentum
in the logic and memory segments and rising demand from emerging technologies such as AI, internet of things (IoT), 6G, and autonomous systems.
Given this accelerating trajectory, the Semiconductor Industry Association (SIA) now expects the industry to reach roughly $1 trillion in 2026, marking an unprecedented expansion, said the report.
Overall, potential catalysts for the tech sector include better-than-expected demand recovery in the semiconductor industry, increasing supply chain diversification from North Asia towards Malaysia, new incentives and grants under the National Semiconductor Strategy (NSS), and weakening of the MYR against the USD.
Potential downside risks, however, include delays in global semiconductor demand recovery, lack of funding and incentives under the NSS, escalating global geopolitical tensions, shortage of labor and engineering talent, and further appreciation of the MYR against the USD.
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