Huawei vendors resilient as trade war impacts Taiwan tech sector
Foxconn, Largan and TSMC shine while overall sales drop
In October, Taiwan’s tech sector took its biggest hit of the year, with 19 companies being monitored by Nikkei logging a 3.5 per cent year-on-year combined revenue drop. Core Apple and Huawei vendors proved to be surprisingly resilient, mostly thanks to their two most influential customers’ successful iPhone releases and strategic space.
The Taiwanese software vendors included in the monthly tech tacker of the Nikkei Asian Review act as a bellwether of the global tech market, as their clients include everyone from Samsung, Huawei, HP, Dell and Cisco technology firms to internet companies including Amazon and Google.
Key findings were summarised below in an easy-to-digest, graphics-led style for October and the third quarter.
Total revenue for the 19 companies plummeted in October to $1.27 trillion New Taiwan dollars ($41.6 billion), down 3.48 million year-on-year. This is a sharp reversal from September’s growth of more than 4 per cent year-on-year. The launch of the iPhone XR in October 2018 was one factor in the decline, resulting in a higher reference base.
Given the uncertainty of the ongoing U.S.-China trade conflict and Washington’s assault on China’s Huawei Technologies, core suppliers supplying both Apple and Huawei in the three months to September transformed into firm performance. Traditionally, the third quarter is the peak season of mobile supply chains when they brace Apple and Huawei for the second half of the year to launch their new smartphones.
Taiwan Semiconductor Manufacturing Co., the world’s largest contract chipmaker, Foxconn, the world’s largest supplier of computer contracts, and Largan Precision, a camera lens vendor that controls the high-end mobile lenses market, both list Apple and Huawei among their significant customers.
Better-than-expected demand for the iPhone 11 range was a significant factor in recording year-on-year revenue growth in TSMC, Foxconn and Largan, and substantial quarter operating profit increases. We have gained from Huawei’s rise in orders as the Chinese company is looking for non-U.S. Alternatives to the supply chain and prepares inventories for stockpiling.
The momentum of sales extended to October, when TSMC, Foxconn and Largan reported annual revenue growth of 4.42 per cent, 1.04 per cent, and 27.2 per cent, respectively.
Foxconn owner and former chairman Terry Gou said that with the current trade war, he foresees a Group of the U.S. and China replacing the G20 and contributing to a scenario of “one country, two structures” that will also extend to software supply chains. While this is a challenge, Gou said, suppliers also have a business opportunity to find a way to supply both U.S. and Chinese customers.
MediaTek, since Qualcomm’s No. 2 mobile chip maker in the country, is already taking advantage of the trade conflicts. As China continues its de-Americanization campaign replacing U.S. suppliers with non-U.S. suppliers, the company has seen sales pick up.
China’s drive to roll out 5 G wireless networks as early as this month is another growth catalyst for the Taiwanese chip designer, supplying the majority of Chinese smartphone manufacturers like Huawei, Oppo, Vivo, Xiaomi and Lenovo. Samsung Electronics, Amazon and Cisco are also counted as clients by MediaTek.
In most months of 2019, its monthly revenue growth outperformed the overall Taiwanese tech tracker. MediaTek saw a 5.6 per cent increase in its sales from a year ago in October.
“We have a much more positive outlook for 5 G smartphones for next year compared with three months ago,” MediaTek’s CEO Rick Tsai said at the end of October. The firm has also pushed the timeline for its first 5 G embedded modem to the end of 2019. It plans new smartphone releases to be fitted with such processors as early as next year’s first quarter, a timetable close to that of its U.S. competitor Qualcomm.
MediaTek endured a debilitating income decline in 2016 through 2017 after underestimating China’s drive to introduce smartphones capable of supporting state-of-the-art Cat7 data transfer requirements, ignoring a significant market gap.
In the summer of 2017, since MediaTek hired Rick Tsai, an industry veteran and former TSMC CEO, he pledged to improve the profitability of the chip designer and help it regain growth.
MediaTek is growing its technology service business under Tsai’s management, concentrating more on goods that provided higher profit margins and accelerating its 5 G chip growth. The gross profit margin of the group picked up to 42.1 per cent for the July-September period, the best in four years.