Worried workers fret about Taiwan's IT sector
DEBBY WU, Contributing writer
TAIPEI -- Jack Chen has given up.
"We have to work unreasonable hours to service our clients all over the world," said Chen, a 33-year-old IT professional who earned about $1,900 a month before quitting last year to take a career break. "Taiwanese companies are losing their bargaining power following years of cutting prices to win and retain customers."
Taiwan's tech companies work around the clock for shrinking revenues and thinning profits. The Taiwan Stock Exchange's Electronics Sub-Index, which peaked above 560 in 2000, now trades below 340.
The founders of sector champions such as Acer and HTC are returning to active duty to try and turn things around.
Information technology drives Taiwan's economy. It accounts for 51% of the local stock exchange's market capitalization. But its heyday is over. "Strategic missteps lead to destruction," Taiwan's Fubon Securities said in a bearish report on the 2014 outlook for the IT sector.
"Taiwan's tech companies are vexed by sluggish global growth and competition from Chinese manufacturers who do business at a lower cost," said Vincent Chen, an analyst with Yuanta Securities in Taipei.
Research companies IDC and Gartner expect sales of PCs and laptop computers will fall at least 6% further this year. The first-quarter drop, however, was less than expected because Microsoft's phasing out of Windows XP boosted sales of new machines.
Taiwanese electronics companies were expanding manufacturing capacity for traditional products just as demand shifted to handheld devices, according to Luo Huai-jia, deputy secretary-general of the Taiwan Electrical and Electronic Manufacturers' Association.
"Over the past three years, my company has seen its revenue drop by 20% and profit margin shrink by 3% annually," said a sales manager at a leading Taiwanese networking equipment company. "We are suffering because we have been planning our products based on demand for notebooks."
She said many suppliers are opening up their books to clients to try and moderate pressure for price cuts. "What we are doing is mass suicide," she said. "Everyone knows there is no future in the IT sector. Our executives just care about how much they can take away from the company." She is now looking for other work.
Pressure to cut costs has led most Taiwanese IT companies to skimp on research and development, according to Michael Wei, who runs a Taiwanese smartphone component company. "Sure, our IT sector will exist in 10 years," he said. "But that will mean we work 16 hours and get paid peanuts."
The issue is industrywide. Acer four years ago expected to become the world's largest PC maker. It posted losses of $20.5 billion New Taiwan dollars ($681 million) last year and NT$2.46 billion in 2012. Revenues slipped 16% to NT$360.1 billion in 2013. The company has fallen behind China's Lenovo Group and local rival Asustek Computer. Two chief executives have left in recent months.
Smartphone maker HTC has seen its market capitalization decline about 90% from its peak. It posted its first quarterly net loss as a listed company in the July-September period. On April 7, it reported a NT$1.88 billion first-quarter loss. Cher Wang, co-founder and chairwoman, returned to a more active role at the company in October.
All is not doom and gloom.
Taiwan's panel makers are starting to regain their footing after several rough years. AU Optronics generated a net profit of NT$4.25 billion last year. It had suffered two consecutive years of losses. Rival Innolux in 2013 posted net income of NT$5.1 billion, after five years in the red. But revenues slipped 7.9% in the first quarter compared to a year earlier, as shipments of panels for PCs and televisions continue to fall.
The world's No. 1 contract chipmaker by revenue, Taiwan Semiconductor Mfg. finished 2013 with record profits of NT$188 billion and revenue of NT$597.02 billion. First-quarter revenue for the Apple supplier grew 11.7% from a year earlier, thanks to demand for high-performance smartphone and tablet chips.
MediaTek, meanwhile, has prospered by supplying chips to upstart phone makers in China and other developing countries. It reported April 8 that first-quarter revenues almost doubled to NT$46 billion, from NT$24 billion a year earlier.
Companies are also now looking beyond their traditional profit sources. Hon Hai Precision Industry, for example, is investing in a mobile network after winning a new license. Huan Hsin, meanwhile, is investing even further afield. It is bringing Krispy Kreme doughnuts from the U.S. to Taiwan.