More on foeign exchange. Digitimes reports that Motech Industries, a solar cell manufacturer, have suffered an erorosion in their Q1 profits due to a strengthening NT dollar. Digitimes reports:
Motech Industries reported unaudited net profits of NT$239 million (US$7.88 million) in the first quarter of 2008, an amount that was severely eroded by exchange rate losses.
Motech posted gross operating profits of NT$819 million (US$27 million) and non-consolidated income of NT$666 million in the first quarter of 2008. Net profits for the first quarter was NT$239 million. The company's gross margin shrank from 17% to 16.7% due to expenses from employee bonuses. Earnings per share (EPS) was NT$1.16.
Industry watchers noted that Motech is still having consistent sales growth, as evident in its quarterly sales of NT$4.9 billion. However, the rapid appreciation in the New Taiwan (NT) dollar against the US dollar, as well as an inefficient currency hedge policy, led to a booked exchange loss of NT$400 million. The exchange loss stemmed from unused global depository receipts (GDRs), as well as deposits for material procurement, the company explained.
The China Economic News (CENS) also notes that strong appreciation of the RMB in China will force many China-based Taiwan enterprises to close. CENS reports:
Sharp appreciation of renminbi is expected to trigger a major shakeout among Taiwanese-invested enterprises in China, possibly forcing one third of Taiwanese firms in traditional lines to close shop, while allowing those with solid strength to land even more orders in two years later after experiencing the ordeal this and next year, said Lin Chin-chang, chairman of the Humen branch of the Taiwanese Chamber of Commerce in Dongguan, Guangdong Province, yesterday (April 10).
CENS continues,
As a result, Taiwanese firms in Dongguan area may fold at a rate of 20-30 per month, up from 2-3 last year, according to Lin. Xie Qingyuan, vice chairman of Taiwanese Chamber of Commerce in Donggouan, noted that Taiwanese makers won`t be able to take any order should renminbi`s exchange rate climb to US$1=6.5 yuan.
Hopefully some of these companies will survive. Especially hard hit will be the textile industries. Maybe they can hold firm in this economic shake-up.
Article 1: Motech net profits eroded by exchange losses in 1Q08
Article 2: Numerous Taiwanese Firms in China Likely to Fold on Sharp Revaluation of Renminbi
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