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Taiwan tech sales rebound after 9-month decline

TAIPEI -- After nine torrid months of declining sales, Taiwan's major tech companies reported that revenues finally picked up an average of 5% in August from a year ago.

In August, 10 out of 19 Taiwan's major tech companies on the Nikkei Asian Review's Asia 300 companies-to-watch list, reported revenue growth from a year ago, while four of them even showed a double-digit increase. This compares with July when more than 70% on the NAR watch list suffered a sales drop from a year earlier.

The good news in Taiwan's signature tech sector, the barometer of the world's electronic demand, came as key Apple suppliers started to ship orders for the U.S. titan's new iPhone 7 and Apple Watch.

The recovery was also in line with the trade-reliant island's exports, which turned positive in July following a 17-month downturn.

"The overall economy and demand is still slow, and the recovery for one single month is not yet convincing enough," said Arisa Liu, an analyst at Taiwan Institute of Economic Research. "We do see a rebound in the sales of tech companies because of orders from Apple and other mid-range smartphone brands in China but we are cautious about whether the growth can last until the fourth quarter this year."

Liu said that a lot of Taiwan's tech players were also over-reliant on Apple.

Five out of nine key Apple suppliers on NAR's list have generated more revenue in August from a year ago, with overall revenues of these companies increasing 5.5% in the month year-over-year. They, however, have gone through an eight-month slump in sales due to lukewarm demand for premium handsets.

In August, major iPhone assemblers such as Hon Hai Precision Industry and Pegatron reported that their revenue rose 6.8% and 9% to 312.69 billion New Taiwan dollars ($9.92 billion) and NT$82.6 billion respectively.

The revenue of Advanced Semiconductor Engineering, a key chip assembler for Apple, also rose 4.3% in August year-over-year.

However, in the same month, sales for Largan Precision, a major provider of camera lens and Catcher Technology, a key metal casing supplier, continued to drop 9.1% and 2.6% respectively. TPK Holding, a 3D touch module supplier for iPhone's home button, too posted a dip of 15% in revenue from a year ago.

For the first eight months of the year, big losers with more than a 20% revenue slide are Largan and TPK as their main customer faced the first-ever sales decline for its flagship iPhone in 2016.

"The mix results for Apple suppliers showed the U.S. tech giant's conservative attitude when placing orders this year," said Arthur Liao, an analyst at Fubon Securities. "Apple has suffered a lot from overly-build inventories last year and they would not want to be tripped over by the same stone."

Orders so far for the new iPhone 7 series are around 79 million units but Apple asked for 90 million units last year for their iPhone 6s and 6s Plus models, according to Liao.

But news that the world's largest smartphone vendor Samsung Electronics has suspended sales of its Galaxy Note 7 after some batteries in the model exploded while they were being charged could benefit Apple and its suppliers.

The worldwide recall of Samsung handsets could make some consumers turn to Apple, Huawei and OPPO, but others might still consider Apple's new phone to be too pricy, said Liao.

Chips drive growth

The best performers on the NAR watch list are in Taiwan's flagship chip sector with the top semiconductor companies together reporting a more than 26.9% surge in revenue year-on-year in August.

In the same month, Taiwan Semiconductor Manufacturing Co., the world's largest contract chipmaker with 55% of the market share, posted a record revenue of NT$94.31 billion, which is 40.7% higher than a year ago. The improvement is attributed to an increase in market share in making core processors for Apple and strong chipset demand for China's mid- to low-priced smartphones.

TSMC's Co-Chief Executive Mark Liu said in early September that market demand has come back to normal in the second half of year while the company previously thought overall demand could slide due to sluggish economic conditions earlier this year.

MediaTek, the biggest mobile chip provider to China, has seen its revenue gain more than 36% both in August and for the first eight months in 2016.

"Although MediaTek enjoyed a robust expansion in the January-August period thanks to its rapidly growing Chinese smartphone clients such as Huawei, OPPO and VIVO, most of us are worried that there would be an inventory correction in the last quarter of 2016," said Liu at the Taiwan Institute of Economic Research.

Those who have limited business connections with Apple on the NAR list also performed well.

Advantech, the world's top industrial computer maker, continued to post a double-digit growth in sales in August, while it generated 10% more revenue year-over-year for the first eight months this year.

The revenue of Lite-On Technology, a leading electronic component maker of camera modules and power supply parts, also grew 17.6% in August from a year ago.

"Advantech adopted a business strategy to make clients as diversified as possible, and that's why it's not easily hurt by the ups and downs of any single client," said Steve Huang, an analyst at Yuanta Investment Consulting.

Nikkeistaffwriter Chien Chia-hungin Taipeicontributed to this report

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