Riding Out The Storm

Economic News

22 Jul 2010
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Taiwan's computer industry is looking to shrug off the effects of the economic downturn in the US, hoping that new products and strong sales in other countries will take up the slack caused by the slowdown in the sector's biggest market.



On April 16, Taiwan's Acer announced it would be joining the growing number of manufacturers bringing out low-cost notebook computers. This is part of an effort to cash in on emerging markets, as well as targeting students and first time computer buyers.



Low-cost personal computers, along with lighter and thinner notebooks, will spur new demand, according to Wang Jen-tang, chairman of Acer.



"We expect this new form factor will help PC makers regain growth momentum. Over the past three years, PC companies only saw volume growth while revenues stagnated," Wang told the local press.



Acer, which is the world's third-largest PC vendor, has said it is confident it will achieve its projected growth target of 30% to 35% on the 21.2m computers it shipped last year. In part, this growth will be driven by the company's new low-cost laptop, which will be priced at around $500, Wang said.



The move into the entry level computer marketplace by Acer and others has been prompted by the success of Taiwan's Asustek, which has seen strong sales for its low cost Eee PC, launched last October.



On April 17, Asustek said it had posted a 6% year-on-year increase in revenues for March, generating NT$20.3bn ($704m) for the month, mainly on the back of its Eee notebook. The first three months after the release of the low-cost laptop saw sales of more than 350,000 units, and the company said it expects to sell 5m Eee computers in 2008.



Asustek has announced that it will be bringing out a new version of its popular Eee, hoping to hit the shelves at the end of May, before Acer and other vendors such as Dell unveil their own lower-end PCs mid-year.



Another of Taiwan's computer manufacturers, Wistron Corporation, also seems to have avoided any major fallout from the downturn in the US economy. Sales figures for the first three months of 2008 hit $2.79bn, an increase of 65.3% year on year, with $1.1bn of that coming in March alone.



However, it has not all been good news for the Taiwanese computer industry of late, especially for producers of hardware components. An over supply of dynamic random access memory (DRAM) modules on the international market has seen prices fall by around 50% in the past year.



Local analog chip manufacturers are being pressured by international producers seeking to muscle in on the Taiwanese market. Major overseas chip producers such as Maxim, Intersil, ADI and Texas Instruments have reduced their prices by as much as 15% so far this year, looking to win orders from Taiwan's producers of notebook computers, LCD-panels, digital cameras and mobile phones.



The slowdown in these markets is expected to cause a major reduction in capital spending by vendors, with a reduction of nearly half predicted by some experts. Klaus Rinnen, director of semiconductor manufacturing research group at US-based market analyst Gartner, said this trend would be especially apparent in Taiwan's DRAM segment.



"While it might sound harsh, those cutbacks may be what is needed to get the DRAM supply back to where it should be," Rinnen said in an interview with an industry magazine on April 16. "The Taiwan DRAM vendors as a group had a very aggressive plan for 2008, but they cut and chopped those plans to pieces."



Though investment may be slashed, the global downturn in DRAM production affecting other producers means that Taiwan should retain its ranking as the world's largest DRAM manufacturer, maintaining its approximate 37% of market share, according to figures released by market intelligence group DRAMeXchange.



In addition, Gartner analyst Jim Walker said things could be picking up for Taiwan's semiconductor assembly and test services (SATS) firms.



"The possible good news is that a bottom may have been reached in February. March sales for Taiwanese companies have improved, exhibiting a 5% to 15% increase over February."



This optimistic view was backed by recently released results by two Taiwan-based SATS companies, with Advanced Semiconductor Engineering reporting a 12.8% increase in revenue in March compared to the same month in 2007, and Siliconware Precision Industries announcing a 7% rise in earnings for the same period.



Taiwan's LCD sector, by far the global leader with around 90% of the world market, is also looking to happier times, recovering from a supply glut on international markets in 2006. With the Beijing Olympics expected to fuel a surge in flat screen television sales, along with strengthening sales of notebook computers using the LCD technology, experts are tipping good results for Taiwanese producers in 2008.



While the potential recession in the US economy will have some impact on the Taiwanese computer industry, both for chip and component makers and for vendors, the gap will probably be filled by new lines and new markets. Though some smaller producers may feel the pinch, the country's majors look set to weather the storm.
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