TAIPEI -- When Jeff Pu, a renowned analyst covering Apple's supply chain at Taiwan's Yuanta Investment Consulting, begins his new career as head of Asia hardware research at Guangzhou-based GF Securities in September, he will become the third top Taiwanese market watcher poached by Chinese brokerages in 2018.
"I think there is a...megatrend that many Chinese tech component makers are on the rise and they will pose threats to many existing Taiwanese players," Pu told the Nikkei Asian Review. Securities analysts therefore might need to "focus more on the Chinese side."
Pu added: "It's an inconvenient truth that Chinese securities [companies] are expanding to overseas while Taiwanese are downsizing." The analyst is relocating to Hong Kong on Sept. 1, while his family will remain in Taipei. Pu's current company Yuanta Investment Consulting is an affiliate of Taiwan's leading brokerage house Yuanta Securities, while GF Securities is among the top five in China.
Earlier this year, Kuo Ming-Chi, a former analyst at Taipei-based KGI Securities who covers tech companies and often writes about Apple products' specifications, joined Wuhan-based TF Securities. And Andrew Lu, a veteran semiconductor analyst previously with international groups Barclays and Citigroup, was hired by Sinolink Securities, which is incorporated in Chengdu, to lead a hardware research team.
The career moves by Pu and his peers highlighted the growing unease in Taiwan's flagship tech sector, which many Apple suppliers and hardware manufacturers call home. Many of them face the mounting challenges from rising Chinese rivals and a weakening smartphone market, including in Apple's iPhones. Even though Apple just reported record June quarter revenue and profits, the growth came mainly from services, AirPods and Apple Watch accessories, as well as the higher average selling price of the premium model iPhone X. Shipments of iconic iPhones, which have deep ties with Taiwanese suppliers, slowed significantly, rising only 1% year-on-year in the April-June period.
According to Nikkei's analysis earlier this year, Taiwanese companies occupied the most slots - 51 - in the top 200 Apple supplier list based on procurements made in the previous year, But China-based suppliers rose to a record 27. Many Chinese companies have also quickly secured huge orders and grew rapidly by supplying local tech brands like Huawei Technologies and Xiaomi, as these smartphone vendors emerged as international players.
For instance, Taiwanese iPhone camera lens provider Largan Precision sees a threat from Sunny Optical Technology, which mostly supplies to Huawei, Oppo, Xiaomi, Vivo and others. China's Luxshare-ICT has grabbed orders to manufacture AirPods since late last year from Taipei-based Inventec, previously the sole supplier of the wireless earphones. Chinese touch and camera module maker O-film Technology already presented a significant challenge to Taiwanese rivals TPK Holding and Lite-On Technology.
Meanwhile, the gradual shift in supply chains has contributed to pushing many foreign banks and brokerages to withdraw from Taiwan or downsize operations in the past few years. Total employees in Taiwan's securities industry was 34,773 as of the end of July, down nearly 800 from two years earlier though little changed from a year ago, according to Taiwan Stock Exchange data.
In April 2016, Barclays was in the first among this wave to leave Taiwan. BNP Paribas the following May said it would close its bank operations, downsize and relocate its research team to Hong Kong, leaving only a dealing office in Taiwan. The following August, Canada's Bank of Nova Scotia disclosed its planned exodus. Malaysia's CIMB Group Holdings closed its brokerage office in Taiwan early last year.
Deutsche Bank, which has been stationed in Taiwan since 1980 and currently has nearly 200 employees on the island, may become the latest to reduce operation in Taiwan, according to a source. "Deutsche Bank has issued a notice to its employees that it plans to scale down the operation in Taiwan by the end of this year," the person said. Some analysts will be relocated to Hong Kong, while the rest have started to look for jobs, the source added.
But other factors may be at play at Deutsche Bank, which is retrenching globally after problems in investment banking and large penalties resulting from regulatory scandals. The bank declined to comment whether there is any change on their Taiwan operation and office but said the coverage on Taiwanese stocks will not change in the near future.
U.S. index provider MSCI on June 1 also included for the first time more than 230 Chinese stocks, known as A-shares, in its global emerging market indexes, even though corporate governance issues for Chinese firms are still a major concern for most investors.
"Taiwan could be marginalized and we are worried about the outflow of professional talent in our industry," said Vincent Chen, head of the regional research team at Yuanta Investment Consulting. "We do notice that many brokerage operations have been downsized or relocated to Hong Kong. Few positions and opportunities are left here."