US-China trade rift hitting 2H18 Taiwan electronics shipments

11-Jul-2018 Intellasia | Digi Times | 6:02 AM Print This Post

With deep presence in the global electronics and tech supply chains, Taiwan businesses are beginning to feel the pinch of mounting trade tensions between the US and China that are posing new variables to their shipments in the traditional high season in the second half of 2018. And China enforcing rigid environmental protection measures is further dimming business prospects for supply chain players, particularly those of Apple’s.

The worsening trade fight between the world’s two largest economies will not only harm enterprises and consumers in both countries, but also seriously impact multinational businesses and Taiwan enterprises closely associated with industry supply chains of the US and China. In particular, those Taiwan firms with deep deployments in China will bear the brunt of adverse impacts once the US expands the scope of products subject to a 25 percent extra tariff.

Taiwan Semiconductor Manufacturing Company (TSMC) founder Morris Chang earlier noted that the breakout of the US-China trade war could lead to changes large enough to alter the development of China and global semiconductor sectors. Foxconn chair Terry Guo also indicated that the trade war is the largest challenge facing his business group, prompting the group to actively seek effective measures to cushion possible negative impacts.

Hedging bets

Semiconductor industry sources said that both TSMC and Foxconn have already hedged their bets to minimise potential risks. TSMC, for instance, has started volume production of 16nm process at its 12-inch wafer fab in Nanjing, China to better serve its customers there, while Foxconn has kicked off construction of a new panel plant in Wisconsin, the US.

Industry watchers said that once the US-China trade rifts evolve into irrational retaliations against each other, those Taiwan businesses with large customer bases in both countries will suffer most from the ensuing unfavourable impacts. For Apple products, for instance, the US and China are their largest sales markets, and therefore both Apple and its supply chain partners would suffer seriously if China exercises its security screening mechanism to defer shipment schedules for Apple products or if the US imposes heavy import tariffs on Apple devices assembled in China.

PC makers are also worried that although computers and communications products are now excluded from higher tariffs in the first round of trade fight between the two countries, adverse impacts may emerge beyond their imagination if tariff sanction coverage is expanded, given most of their assembly plants are located in China.

At the moment, Asustek Computer and Acer have released contract production to Taiwan ODMs including Quanta, Compal, Pegatron, Inventec and Wistron, which mostly maintain assembly operations in China. The two Taiwan-based PC vendors can hardly turn to potential cooperative partners in other countries well in time, and can only take a wait-and-see attitude instead of taking any countermeasure.

China’s rigid environmental policies

On another front, China aggressively enforcing strict environmental protection policies is adding operation pressure to Taiwan manufacturing plants there. As a supply chain partner of Apple, for instance, Taiwan-based flexible PC maker Career Technology has seen part of its production lines in Suzhou, Jiangsu province suspended following recent inspections by environmental authorities there. This has in turn affected the shipment of Career’s upstream partner Matrix Test Lab.

Most players in the semiconductor, smartphone and PC supply chains are conservative about their revenue and profit prospects for the second half of 2018 due partly to China’s revved-up efforts on environmental protection and the uncertainties associated with US-China trade spats, and partly to tight supplies of silicon wafers, passive components, and DRAM as well as slack crypto mining demand and lackluster sales of PC and smartphones.


Category: Taiwan

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