So we all know by now the economy is in the worst shape its been in for a while. It seems the stock market is bouncing back but the news isn't all good. Digitimes reports the "jobless rate scores new high in March" and increased to 5.81% and the Taiwan News reports "Taiwan's export orders fell for a sixth month in March, extending the longest run of contractions since 2001, as global demand for electronics goods tumbled." Taiwan News continues "Orders, an indication of shipments in the next one to three months, declined 24.29 percent from a year earlier, easing from an average of 32.7 percent of the two first months of the year."
However, this has dampened some of the optimism. Digitimes reported "IC design house AAT expects 80% revenue growth in 2Q09." Sounds great right? However, read the report and you will see that it is an 80% sequential growth (quarter on quarter) and that right now year-to-date (YTD) revenues compared to the first three months of last year are down 66.7%. So a clever spin on the numbers can make things look a little more positive than what reality suggests.
EMS Now however reports Terry Guo Tai Ming (Hon Hai founder and head) is optimistic and that he "believes the global economy is not as bad as expected. " EMS Now also says "Hon Hai Precision Industry Co., one of the worlds' leading providers of electronic manufacturing services, is recruiting over 1,000 personnel in Taiwan ." Well at least he is putting his money where his mouth is and helping to cut that unemployment rate.
Another big firm is also hiring. Taiwan Semiconductor Manufacturing Corp. (TSMC) "CEO Rick Tsai has confirmed the semiconductor manufacturing giant will be increasing its R&D employee headcount by 30 per cent and manpower in its design service unit by 15 per cent to drive a quick transition to 32nm in 2010 and sub-32nm by 2011," says the inquirer. Well thats also good to see.
So although the news on unemployment, exports and revenue reporting is not good, the light at the end of the tunnel is increased opportunities at Hon Hai and TSMC. Are we edging out of the crisis? What long term impact will the crisis have in Taiwan's technology industry? Will orders pick up later in the year?
Look forward to your comments and thoughts on these issues.
24 April 2009
Financial Crisis and Taiwan Tech Industry
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2 comments:
I'm definitely not a big expert on these matters but a few armchair anon commenter thoughts. Since TSMC and Hon Hai are the blue chips of Taiwan with very high market share, their futures are tied to the macro-environment with the caveat that the downturn probably will eventually help eliminate some of the competition:
"So a clever spin on the numbers can make things look a little more positive than what reality suggests."Agreed. You know, I was thinking of the same thing from the other side--when Jan/Feb numbers were starting to come out, I was thinking, why are they only doing year-on-year comparisons making things look more bad than they were? Like exports were down like >40% YOY but then they were down >30% YOY. But I'm not sure how to calculate the seasonally adjusted numbers correctly--in boom times, are the boom months even more "boomy" than the non-peak months? If so, the revenue growth quarter on quarter really needs downward adjustment. 2Q is usually stronger than 1Q anyways, no?
Unemployment should generally lag the recovery. TSMC and Hon Hai are definitely bright spots, though I wonder if they had cut too much earlier on. Still, some good news.
It occurred to me yesterday to try to remember what was happening last year.
1) People were still talking about "decoupling" and twin engines of the US and China. Well, that wishful thought bubble burst very soundly. Still, it does look like China is driving new demand from exporters in Taiwan, though it's no where near enough to replace the US. For companies like MediaTek, oriented towards growth in the Chinese market, things are looking really good.
2) The stock market in Taiwan started a long, unwavering descent. The reaction of the Ma administration started a series of anti-market controls, including restricting downward movements in stocks and thereby destroying liquidity. The one bright spot at the time appeared to be a stable currency and no need for any financial rescues. But see below.
3) Meanwhile, Korea has trounced Taiwan in DRAM and flat panels on a devalued won. They are close to signing FTAs with the US (some problems domestically and abroad, true) and the EU. And in very surprising news, the S. Korean economy may have even grown 1Q09.
The recovery will come, but as to when, I think it's anyone's guess. But as to long-term impact, I think Taiwan has some structural issues that need to be resolved. A lot of people blame all the problems of this downturn on the US and subprime borrowing. That's not quite right actually.
The flip side of a borrower borrowing too much at cheap rates is a lender giving away money at too cheap rates. Taiwan, China, and Japan are all guilty of this. Though there was the thought that Korea had over-borrowed, the strong currency created the incentives for Korean companies to stay away from merely working/selling for the cheapest prices. I'm not sure how much intent was there, and in fact, I think it was driven by some strange campaign promises by the previous president, but the result was the won was high and protected against inflation when commodities were in a bubble, and it dropped when exports needed a helping hand.
Again, I don't know the intent was there, but it looks like there is something there for Taiwan to learn for the long-term:
1) Overlending to the US is not sustainable. Thus, a cheap NT is not sustainable.
2) In the long-term, over reliance on exports will catch up to you.
3) OEM/ODM (I'm thinking stuff like flat panels) puts you at extra risk during a downturn because you are someone's extra capacity. In the future, I think this will be priced in and the attractiveness of branded businesses will be even greater.
Unfortunately, I'm not sure how signing ECFA with China solves these deep problems unless China is willing to also begin protecting intellectual property and brands. I'm for free trade, but I think in this case, the problems aren't just tariffs, and hoping for China to save Taiwan's economy is someone's wishful thinking.
Once again thanks for your insightful comments. You are right that companies like MediaTek are able to benefit from being China focused but as you say, the biggest market is the US although I do think once this crisis is over, the shape of the world (economically speaking) will be different. It was already shifting before and I think the dislocations will be more apparent and visible. But still, business witht he US is still important, especially for Taiwan.
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