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Business Trends

Taiwan's tech sector still sluggish despite sales rebound

Largan loses some orders due to low yield rate

Flags of Taiwan and Taiwan Semiconductor Manufacturing Co (TSMC) are displayed next to its headquarters in Hsinchu, Taiwan on Oct. 5, 2017.   © AP

TAIPEI -- Taiwan's technology sector is still struggling to pick up sales momentum, although the combined revenue of 19 companies tracked by the Nikkei Asian Review rose in March year-on-year, reversing from a decline in February. 

The accumulated revenue of the 19 companies climbed 1.26% annually to 896.99 billion New Taiwan dollars ($30.65 billion), compared with the 7.88% year-on-year drop in February, according to data compiled by Nikkei. 

But 12 of those companies generated less revenue than a year ago, with sales contracting between 0.65% and 46.66%. 

The combined revenue of the nine Apple suppliers on the list gained 4.42% to NT$724.16 billion in March. However, five of the nine suppliers posted year-on-year declines in March, the data showed.

Camera lens supplier Largan Precision, whose handset clients include Apple and Huawei Technologies, saw its revenue dip 13.41%, the fourth consecutive month of annual decline, due to overall softness in the smartphone industry.

Largan's net profit during the January-March quarter plunged 18% year-on-year to NT$4.01 billion, or NT$29.96 per share, the weakest quarterly performance over the past seven quarters.

Its gross margin lost 7.64 percentage points annually to 63.3%, while operating margin fell 9.06 percentage points to 52.81%. Both represented the lowest margin performance over the past seven quarters. 

"The shrinking revenue scale, lower production utilization rate, the dissatisfactory yield rate were the main reasons behind the falling gross margin," Largan CEO Adam Lin told a teleconference. 

The weak revenue was mainly due to a fall in demand from a major client, Lin said, without elaborating.

When asked if some clients had shifted orders from Largan due to the low yield rate to other camera lens suppliers, Lin said: "We encountered bottleneck in the manufacturing process and affected the shipments to clients last quarter. We are training our engineers to solve the issues." KGI Securities analyst Kuo Ming-Chi said in a client note mid-March that Largan lost some orders from a Chinese smartphone client to Sunny Optical Technology. 

Lin said that Largan must improve its technologies and manufacturing capability to stay competitive. Largan's revenue in April and May could be better than March if shipments to clients meet few problems, Lin said. 

Sales at key iPhone assembler Hon Hai Precision Industry, better known as Foxconn Technology Group, increased 2.18% year-on-year to NT$349.15 billion. Foxconn attributed the increase to its strong computing segment, including in networking and its smartphone assembly business. 

Sales at Pegatron, a smaller rival to Foxconn, rose 11.22% annually to NT$82.98 billion, the fourth straight month of annual expansion. The company said its businesses in networking, game consoles, smartphones and other consumer electronics devices drove up revenue in March.

Foxconn is the sole assembler of the premium iPhone X and the key maker for the iPhone 8 Plus, while Pegatron mainly produces the smaller-sized iPhone 8 and iPhone 7 models. 

The revenue for Taiwan Semiconductor Manufacturing Co., the sole supplier of iPhone core processor chips, surged 20.57% annually to NT$103.69 billion, the first time the company has exceeded NT$100 billion in monthly revenue, the data showed. 

TSMC's strong performance was mainly fueled by cryptocurrency mining demand, which offset the inventory correction for its communication chips amid a slow season for smartphone sales, market analysts said. 

Catcher Technology, a metal casing supplier for Apple's iPhones and MacBooks, is one of the main contributors to Taiwan's tech sales rise in March. Its revenue rose 31.06% from the same period a year earlier to NT$6.51 billion, the second-highest record. 

Catcher, which also supplies metal casings for other U.S. notebook computer vendors, attributed the strong growth in March to the increasing adoption of metal casings for notebooks. 

Of the 19 tech companies on the list, the best performer for March was still Nanya Technology, the world's No. 4 dynamic random access memory maker after Samsung Electronics, SK Hynix and Micron Technology. Its sales ballooned 60.32% from a year earlier, fueled by the increasing prices of memory chips and persistent tight supply.

HTC continued to be the worst performer on the watch list. Its revenue plummeted 46.66% annually to NT$2.77 billion, the ninth straight month of year-on-year decline. HTC has been struggling in the intense competition in the smartphone industry, while its virtual reality business has not yet grown big enough to offset weakness in handsets sales. 

Innolux and AU Optronics, the two leading domestic panel makers, saw their revenue plunge 27.99% and 17.71% respectively from a year ago, both hurt by a fall in the average selling prices of displays amid concerns of a looming supply glut.

Sales at Advanced Semiconductor Engineering, a key chip packaging service provider and tester for Apple, retreated 1.74%.

Nikkei staff writers Cheng Ting-Fang and Chien Chia-Hung contributed to this report.

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