INARI: Mixed Outlook Emerges Amid RF Segment Headwinds, Target Price Adjusted

A recent analyst briefing highlighted a mixed outlook for a prominent outsourced semiconductor assembly and test (OSAT) provider, particularly concerning its traditionally robust radio-frequency (RF) segment. While a quarter-on-quarter recovery is anticipated, persistent challenges have led to a revision of the target price.

Performance Review

The group recorded weaker sales across all core segments during the recent quarter. The RF division, a historically significant revenue contributor, experienced an 8% decline in revenue. This downturn was attributed to a strategic shift by customers from mid- to low-band filters towards high-end RF filters, with much of the associated assembly and packaging work reportedly secured by Taiwan-based competitors. Consequently, RF utilisation dipped to 65%, significantly below the over 80% achieved during new smartphone ramp-up phases, and margins were also impacted. Despite these headwinds, stronger RF sales are projected for the upcoming quarter, driven by a rebound in smartphone sales.

Challenges and Industry Shifts

The industry landscape for RF front-end modules is poised for significant transformation, especially with the anticipated post-Skyworks-Qorvo merger by early 2027. This event could reshape Apple’s RF front-end module content, potentially strengthening Broadcom’s position in mid- and high-band modules. The OSAT provider is actively developing a more complex RF module for a key customer and aims to capture a larger share of RF testing services amid these market realignments. The company has already initiated production validation for higher-end models. However, the fiscal year 2026 is expected to remain challenging, with the next flagship smartphone cycle potentially delayed until early 2027. The memory segment also faced a setback due to chip shortages, resulting in below-par capacity utilisation.

Future Outlook and Strategic Growth

Despite the RF sector’s near-term headwinds, the company maintains an upbeat outlook on its datacom photonics business. It has doubled its P13 chip fabrication capacity to support growing demand for fibre optic transceivers and the migration from 400G to 800G, largely fuelled by the adoption of optical connectivity in AI data centres. Furthermore, the company is actively collaborating with a leading US-based firm to become a sole supplier for low-end memory products, with plans to explore new memory products thereafter.

Investment bank Public Investment Bank has maintained a “Neutral” recommendation on the stock, revising its 12-month target price downwards to RM2.01 from RM2.29. This adjustment is attributed to near-term headwinds in the RF division and a lower PER multiple of 29x.