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Taiwan tech tracker

Taiwan tech industry ekes out growth as tough quarter begins

Loss of server demand adds to troubles facing suppliers

A technician checks servers at a Japanese cryptocurrency mining operation. Server demand has "lost steam" as an earnings driver for Taiwanese suppliers, a chip industry executive says. (Photo by Kotaro Fukuoka)

TAIPEI -- Taiwan's technology sector, a barometer of global electronics demand, returned to growth in January but remains in a precarious position as a slowdown spreads from smartphones to servers. 

The combined revenue of 19 Taiwanese manufacturers tracked by Nikkei edged up 1.32% on the year to 966 billion New Taiwan dollars ($31.3 billion), marking the first growth in two months.

But 12 of the 19 companies suffered year-on-year declines, data compiled by Nikkei showed. Total revenue fell 21.14% on the month in January, which marks the start of a slow season for electronics suppliers following the year-end shopping rush.

"As the smartphone industry matures and faces slowing demand, it will be hard for the tech sector to see a major breakthrough this quarter," Mia Huang, a tech analyst at Taipei-based TrendForce, told the Nikkei Asian Review. The trade war between Washington and Beijing also poses uncertainties for the industry, she added.

Adding to the gloom is slowness in servers, which had been a steady earnings stream for major electronics assemblers like Foxconn and Compal Electronics even as smartphone demand weakened.

"Server demand has run out of steam," said a semiconductor industry executive. 

Taiwan Semiconductor Manufacturing Co., the world's largest contract chipmaker, saw revenue drop 13.06% from December and 2.07% from a year earlier. TSMC supplies chips for uses ranging from smartphones to data centers to automotive electronics.

TSMC's revenue decline also partly reflected the impact of a defective chemical that disrupted production at a factory in southern Taiwan that supplies clients including Apple, Huawei semiconductor arm HiSilicon Technologies, Nvidia, MediaTek and Broadcom. The company said on Friday the interruption will reduce its revenue by up to $550 million for the current quarter.

MediaTek, which designs chips for Chinese smartphone makers like Xiaomi, Oppo and Vivo, lost 24.04% in revenue from a month ago and 3.52% from last year. Revenue at Nanya Technology -- the world's fourth-largest maker of dynamic random access memory after Samsung Electronics, SK Hynix and Micron Technology -- fell 12% on the month and 30.73% on the year, dragged down by sinking DRAM prices.

The slowness in Taiwan's tech sector is not confined to the upstream of the semiconductor industry, but has also spread to the downstream of component suppliers.

Foxconn, a major iPhone assembler and key manufacturing partner to Huawei, saw revenue plunge 33% on the month to NT$414.09 billion, although it logged year-on-year growth of 3.3%. Foxconn trades as Hon Hai Precision Industry.

Largan Precision, a camera lens supplier for iPhones and Huawei, suffered an annual decline of 4.82% in January, while metal frame maker Catcher Technology was hit by a 40.03% year-on-year drop.

"On top of the start of the traditional slow season, Catcher's performance was mainly affected by the weak demand for smartphones continuing from December last year," a Catcher spokesperson said.

Foxconn display panel arm Innolux and rival AU Optronics both suffered a nearly 20% year-on-year drop in January revenue. Asustek and HTC, Taiwan's two leading smartphone vendors, continued to see declines.

Revenue at the 19 tech companies tracked by Nikkei moved in line with Taiwan's exports, which shrank 4.6% on the month in January and 0.3% from a year earlier to $27.3 billion.

"Taiwan's exports fell for the third consecutive month in January, as we have entered the slow season for exports and [are] affected by the slowing global economy," the Ministry of Finance said in a statement recently.

Nikkei staff writers Cheng Ting-fang and Chien Chia-hung in Taipei contributed to this report.

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