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APAC Tech sector’s neutral outlook offset by semiconductor rebound

Fitch Ratings-Seoul/Hong Kong-28 November 2023: The APAC technology sector’s revenue growth and operating profitability will pick up only slightly in 2024 from a low base in 2023 as consumer demand improves gradually and inventory correction is mostly completed in 2023, Fitch Ratings says.

Sector fundamentals remain largely neutral, except for the semiconductor sector, for which we have an improving outlook in light of our expectation of a recovery from 2023’s severe downturn. We expect inventory levels to normalise and consumer demand to rise from end-markets such as personal computers, smartphones and autos. Demand from developments in artificial intelligence may also aid recovery. On the other hand, we have a neutral outlook on the other three sub-sectors – Chinese internet majors, global hardware brands and Indian IT services.

We expect the Chinese internet majors’ focus on cost efficiency to continue to drive solid operating cash generation in 2024, despite the uncertainty over China’s economic recovery pace, while large shareholder buybacks will temper the pace of deleveraging. Meaningful growth in global hardware brands’ operating cash flows is unlikely, limited by a continued challenging economic outlook. Indian IT service providers are likely to face pressure on operating profitability due to higher labour costs although long-term growth will remain intact.

Persisting economic uncertainty and geopolitical risks from US and China tensions will continue to pose major risks to the technology sector, which is highly susceptible to global economic volatility. However, Fitch-rated technology companies are well positioned to weather tough times given their strong market position and technology leadership. Fitch Ratings

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