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Business trends

Taiwan's tech industry hunkers down after worst month since 2016

Key iPhone assembler Pegatron warns of a 'hard year' ahead

Pedestrians walk past an iPhone advertisement in the Chinese city of Nanning. Taiwnese suppliers of the U.S. smartphone company have suffered the effects of its sales slowdown.   © Imagechina via AP Images

TAIPEI -- iPhone suppliers are bracing for a tough 2019 after Taiwan's leading electronics manufacturers logged their slowest month of sales in three years.

Total revenue at 19 Taiwanese tech companies tracked by the Nikkei Asian Review, a barometer of global electronics demand, fell 2.47% on the year in February to 684.71 billion New Taiwan dollars ($22.13 billion), marking the worst monthly result since February 2016.

Eleven of the 19 companies saw year-on-year contractions in revenue, with six suffering double-digit declines, data compiled by Nikkei showed.

Pegatron, the second-largest iPhone assembler after Foxconn, on Thursday warned that the April-June quarter would be the company's trough for the year, and that all of 2019 would be difficult because of uncertainties created by U.S.-China trade frictions.

"Besides the trade war, demand for existing products has already peaked and new products are still on the way. ... It is going to be a hard year," Pegatron CEO S.J. Liao said.

Chief Financial Officer Charles Lin said intensified price competition among peers made it hard for Pegatron to pass along rising labor and materials costs to customers, squeezing profitability. Meanwhile, assemblers like Pegatron face greater difficulty in readying a massive labor force and maintaining production efficiency as the industry matures and demand cools faster than expected, he said.

"We will cautiously manage costs and do our best to maintain the profits that we worked so hard to earn," Lin said.

Top iPhone assembler Foxconn, which trades as Hon Hai Precision Industry, saw monthly sales in February drop 4.39% to NT$265.6 billion, the lowest recorded since July 2014.

"We don't see much excitement for a smartphone industry this year that is already very saturated, besides the foldable phones that are still developing," said Joey Yen, an analyst at research company IDC, adding that the effect will ripple through to the supply chain. "It will be a tough year for smartphone makers ... and it's even tougher for those brands that are not in the top 5 positions to grab consumers' eyes and stay in the race."

Leading global chip assembler Taiwan Semiconductor Manufacturing Co., the sole provider of iPhone core processors, recorded its worst monthly revenue of NT$60.8 billion since April 2017, down 5.8% from a year ago. Memory chip maker Nanya Technology, which supplies various electronic brands including Apple, also suffered its lowest monthly sales in almost three years due to uncertainty in the global economy.

Sales at Catcher Technology, a metal casing and frame maker for iPhones and MacBooks, plunged nearly 40% to NT$3.44 billion, marking the lowest level in five years.

Taiwanese electronics brands Asustek Computer and HTC continued to suffer revenue declines in February. Both the companies witnessed their worst monthly sales performance since Nikkei started to track them in January 2013.

Apple faced a major setback last year when demand for its newest iPhone series dropped sooner than estimated. The Cupertino, California-based company told Foxconn and Pegatron to cancel their plans to increase production for iPhone XR only weeks after the model hit the shelves in October, Nikkei reported.

Apple, the world's most profitable smartphone company, on Jan. 2 trimmed its quarterly revenue guidance for the first time in 16 years. CEO Tim Cook blamed the slowing Chinese economy and the ongoing US-China trade war. Taiwanese tech suppliers, many of which rely on Apple as their biggest client, had little shelter from the smartphone industry headwind.

The export-oriented island is caught in the trade friction between the world's two largest economies. The Taiwanese government recently lowered its 2019 GDP growth forecast by 0.14 percentage point to 2.27%, citing a slowing global economy that hit Taiwan's export and domestic demand.

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