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Demand for memory chips in Asia might be picking up soon, analysts say

Key Points
  • Investors in the semiconductor space could be attempting to "time the bottom," said Randy Abrams of Credit Suisse.
  • The downturn cycle in the semiconductor sector "might be much shorter than expected," according to Kiwoom Securities' Daniel Yoo.
  • Both analysts also explained to CNBC how the sector might be affected by the upcoming trade negotiations between the U.S. and China.

The outlook for the semiconductor sector may be turning positive. Analysts are expecting chip demand to hit bottom before picking up later this year.

A number of chip companies said the the first quarter of 2019 will likely see a "cycle bottom" despite offering a poor outlook for the period, Randy Abrams, managing director and head of Taiwan equity research at Credit Suisse, told CNBC on email.

Investors would typically attempt to "time the bottom" and "worry about the the rate of recovery later," he said.

The downturn cycle in the semiconductor sector "might be much shorter than expected," according to Daniel Yoo, head of global strategy and research at Kiwoom Securities.

Most investors are looking for a turnaround in demand for dynamic random-access memory chip (DRAM) at a time when chipmakers are cutting back on their capital expenditure, said Yoo.

This would result in a "sharp adjustment" of the oversupply situation in the semiconductor sector in the second half of 2019, he added.

"In fact, parts producers are talking about demand pickup, which could be much stronger than (the) market expects," he said.

Impact of US-China trade war

The analysts also cited the potential impact of the U.S.-China trade talks that are taking place in Beijing this week.

"The trade talks are very important to the tech sentiment," said Credit Suisse's Abrams.

"A number of companies have held off capital investment projects (whether to stay in China or shift overseas) and also now cutting orders to deplete inventory for fear of a trade induced slowdown," he said, adding that sentiment and demand from China have also been impacted by the uncertainty.

An agreement to lower tariffs or averting an escalation in trade tensions, will help lift Chinese demand and investments, as well as confidence for companies to add capacity or rebuild inventory, he said.

Export data for South Korean semiconductors declined by 23 percent in January. That, said Kiwoom Securities' Yoo, was largely attributable to China.

As the U.S. puts pressure on China to open up its domestic market, South Korean chipmakers could benefit, Yoo said.

South Korea's Samsung Electronics and SK Hynix are among the largest chipmakers in the world. So far this year, most semiconductor shares in Asia have seen strong gains.

In South Korea, shares of Samsung have gained almost 19 percent and chip maker SK Hynix risen more than 24 percent year-to-date on Tuesday. 

Within the same time frame, Japan's Tokyo Electron, which manufactures semiconductor equipment, has seen gains of about 25.3 percent while chip company Renesas Electronics has skyrocketed 43 percent. In Taiwan, major Apple supplier Taiwan Semiconductor Manufacturing Company has risen approximately 2 percent while Mediatek has gained more than 12 percent.