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Taiwan tech tracker

Apple suppliers drove record Taiwan tech revenue in December

Analysts cut forecasts for Q1 2018 as iPhone X sales disappoint

TAIPEI -- While Apple suppliers continued to fuel sales in Taiwan's tech sector in December and helped drive 19 tech firms monitored by the Nikkei Asian Review to record combined revenue in 2017, market watchers fear the party may be over.

For December, overall sales of the 19 tech companies on the Nikkei Asian Review's watchlist increased more than 20% year-on-year to a record 1.24 trillion New Taiwan dollars ($41.91 billion). This represents the second consecutive month with the highest-ever monthly revenue since January 2013, when listed companies in Taiwan began to adopt international financial reporting standards.

It also marked the 13th consecutive month of year-on-year sales growth. This was despite the fact that 16 out of the 19 companies saw their revenue decline month-on-month from November, which indicates that sales of new iPhones have peaked.

For all of 2017, the companies' combined sales rose 6.47% from NT$11.42 trillion a year ago, the highest number since the 2013 adoption of IFRS.

Fifteen of the 19 companies saw revenues advance last year, while those of nine key Apple suppliers on the Nikkei Asian Review's list all rose year-on-year.

The best performer in December was the sole iPhone X assembler Hon Hai Precision Industry, also known as Foxconn Technology Group, whose record monthly revenue surged more than 50% year-on-year, or more than 18% month-on-month.

Foxconn's smaller rival Pegatron, which mainly assembles the iPhone 8 model, saw its revenue grow 6.61% on the year but dropped nearly 27% from November.

Foxconn's robust revenue last month could mostly be attributed to the fact that shipping of the iPhone X only began in November, while the average selling price per unit for the premium handset, compared with the iPhone 7 Plus, is 30% higher, according to Jeff Pu, an analyst at Yuanta Investment Consulting.

Lackluster demand

However, Pu's agency saw lackluster demand ahead for high-end smartphones, and it recently cut its forecast for iPhone X shipments in the first quarter from 30 million units to 26 million. Meanwhile, Pu reaffirmed that production of the iPhone 8 range would be some 18 million units in the current quarter, a sharp drop from 36 million in the October-December period.

"There is no exciting super cycle," said Arthur Liao, an analyst at Fubon Securities. "iPhone X demand is far below expectations. We are now looking at a very slow first half of 2018 for all Apple suppliers. Apple has stopped placing new orders."

Yuanta's Pu added that, meanwhile, the inventory level for leading Chinese smartphone makers such as Oppo and Vivo is very high as the overall market is soft.

Largan Precision, the major iPhone camera lens provider, is one of the best barometers of demand for iPhones and other premium smartphones from Oppo, Vivo and Huawei, according to analysts.

December revenues at Largan decreased more than 10% year-on-year to NT$4.87 billion.

Largan Chief Executive Adam Lin confirmed in an earnings call on Thursday that his company's monthly revenue in January and February could see year-on-year decline, highlighting the strong headwinds for all high-end handsets worldwide.

However, Apple's healthy earnings and stock price movement can be decoupled from Apple suppliers, an analyst said.

"Apple still can report record earnings because the sales price of its handsets have increased a lot. But we don't think Apple suppliers' margins have improved much," said Fubon's Liao. He added that almost all shares of key Apple suppliers had dropped sharply since November and were unlikely to rebound in the near term.

Foxconn's shares have fallen nearly 15% over the past three months, while those of Apple rose more than 11% over the same period.

Best and worst performers for 2017

For all of 2017, the three top performers on the Nikkei Asian Review's list showing strong revenue growth momentum were Nanya Technology, Taiwan's leading memory chipmaker, TPK Holding and Catcher Technology, Apple's touch module maker and metal casing provider, respectively.

Nanya Tech's sales increased nearly 32% in 2017 thanks to tight supply and the rising price of dynamic random access memory, or DRAM chips, last year.

DRAM is used in a wide range of electronics including PCs and smartphones.

Sales at TPK rose more than 20% year-on-year for 2017 as the average sales price for touch components used in the iPhone X is higher than those used in Apple handsets in 2016.

Catcher's 2017 revenue jumped nearly 18% from a year ago because it gained new business to assemble the metal frames and glass backs of the smartphones, rather than simply supplying the metal casings for iPhones as it did in 2016.

The two worst performers on the list, reporting more than double-digit drops in revenue for 2017, were MediaTek, the world's No.2 mobile chip provider after Qualcomm, and smartphone maker HTC. Both suffered from fierce competition and lost market share to rivals.

Nikkei staff writers Debby Wu and Chien Chia-hung in Taipei contributed to this report

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