Taiwan tech recovery lifted by US, Japan cost woes

By : |June 29, 2002 0

Baker Li

TAIPEI: Taiwan’s electronics firms are enjoying rising orders from major tech
firms in Japan and the United States that are under pressure to lower costs and
boost sagging profits by contracting out production, analysts said.

Major beneficiaries are the island’s contract manufacturers of computers,
semiconductors and flat-panel monitors, which have increasingly close ties with
Japanese and US counterparts.

"Orders are absolutely increasing because of outsourcing and
introduction of new products," said Hsu Kuo-an, an economist at Capital
Securities. "The main concern is competition among suppliers
themselves," said Paul Wang, a PC analyst at SG Securities.

"Without a doubt, only those big companies with good reputation in
manufacturing will keep obtaining contracts. Smaller players are likely to see
fewer orders and will be forced to diversify to survive the keen competition in
the industry," Wang said.

Just this week, NEC Corp, Japan’s largest personal computer supplier, said it
aimed to increase purchases of a wide range of Taiwan tech products by 10 per
cent to 220 billion yen ($1.83 billion) to reduce costs. Taiwan’s First
International Computer said notebook PC orders from NEC this year would rise
nearly 50 percent.

LCD monitor and cell phone maker Benq Corp has said it was approaching
Japanese companies for new orders. Lured by falling prices, computer users are
switching from boxy cathode ray tube (CRT) monitors to sleek liquid crystal
display (LCD) monitors that also save on power and space.

The Taiwan dollar and the yen have both risen against the US currency
recently, but the Taiwan unit has fallen around seven per cent versus the yen
since early April as the island’s central bank aggressively intervened to slow
appreciation. "We are seeing more outsourcing for Taiwan especially given
the yen’s strength," said Nicholas Bibby, regional economist at UBS Warburg.

Taiwan saw export orders from Japan jump 22 percent in May from a year ago,
sharply higher than the average 2.85 percent rise in the first five months of
the year. Taiwan’s total May export orders rose to an 18-month high of $13.14
billion, of which Japan accounts for around 10 percent.

US demand
By comparison, orders from the United States, the island’s largest final
export market, rose only 6.2 percent from a year ago, but Hong Kong orders
soared 24.8 percent to a record high $2.79 billion.

Hong Kong serves as a conduit for the bulk of trade with China, home to
thousands of Taiwan companies manufacturing for re-export to major markets like
the United States. In light of the rash of recent profit warnings by US tech
titans, analysts said US firms would be forced to increase outsourcing to stay

Motorola, the world’s second-largest mobile phone maker, said it would shift
more outsourced manufacturing to Taiwan Semiconductor Manufacturing Co (TSMC),
after it fired 7,000 workers on Thursday.

The news lifted shares of TSMC, the world’s largest chip foundry, by 2.26
percent higher to close at T$68.00 on Friday. Coupled with the overnight rate
cuts by the central bank, the news rallied the broader TAIEX index 1.62 percent
higher from a nearly seven-month low.

Last month, German memory chipmaker Infineon Technologies signed an agreement
with Taiwan’s Nanya Technologies to build a next generation chip plant on the
island, costing some US$3 billion. It was the third deal for Infineon to secure
supply with Taiwan companies, which also include Mosel Vitelic and ProMOS

Besides the joint venture, Nanya and Infineon also agreed to jointly develop
technology to allow them to make more powerful chips than current technology.
"Taiwan is still a very efficient manufacturing base for high-tech,"
Infineon’s general manager in charge of memory products, Harald Eggers, said at
the time.

(C) Reuters Limited.

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