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Taiwan tech tracker

Asian tech suppliers brace for prolonged downturn

Trade war clouds earnings outlook from Japan to South Korea to Taiwan

Saturated smartphone markets have contributed to a slowdown in demand at chipmakers and other suppliers in Asia.   © Reuters

TOKYO -- Asian tech industry suppliers are bracing for a global slowdown in demand this year as they battle against the impact of the U.S.-China trade war and a saturated smartphone market.

Earnings forecasts for tech companies show dim prospects. Taiwan Semiconductor Manufacturing Co., the world's largest chip foundry and a key Apple supplier, forecasts its operating profit in the three months ending March to drop by more than 20% from the previous year.

Fourth-quarter 2018 results showed notable profit declines for companies such as memory chip makers SK Hynix of South Korea and Nanya Technology of Taiwan, as well as Japanese motor maker Nidec.

SK Hynix's fourth-quarter operating profit dropped 32% from the previous quarter, with the company citing a rapid change in memory market conditions. Nanya's quarterly net profit plunged about 40%. The company said it would cut capital expenditure by 50% in 2019 in response to market conditions.

South Korea's Samsung Electronics said it will log its first decline in operating profit in two years for the October-December quarter, while LG Electronics forecasts an 80% drop in operating profit for the same period.

South Korean chip exports to mainland China and Hong Kong fell 19% in December, while the total value of Taiwan's exports to those markets slid 9.9%. About 40% of exports from tech-heavy Taiwan go to China.

The U.S.-China trade war and a maturing smartphone market are among the key factors weighing on Asian tech companies' earnings outlook.

The negative impact is not confined to the semiconductor sector. LCD panel maker Japan Display logged an operating loss of 14.4 billion yen ($131 million) for the nine months ended in September, with sales down more than 40% on the year.

Other players, such as chipmaking equipment supplier Tokyo Electron, have downgraded their earnings forecasts.

Nikkei calculates that October-December orders for electronic parts fell 3% on the year to 1.53 trillion yen, the first decline in nine quarters, for Japanese suppliers Murata Manufacturing, TDK, Kyocera, Nidec, Nitto Denko and Alps Alpine, formerly Alps Electric. Though automobile-related sales remained relatively strong, major declines in smartphone components ended a growth streak that had lasted since late 2016.

China's economic slowdown contributed to a downturn in demand for electronic parts. Smartphone production volumes in China have been falling since September, with December notching a nearly 10% decline. Taiwan-based contract manufacturer Hon Hai Precision Industry, better known as Foxconn, has cut around 50,000 seasonal workers from its biggest Chinese smartphone production center in Zhengzhou, Henan Province.

Japanese exports of semiconductor manufacturing equipment to China plunged 34% on the year to 69.2 billion yen in December, according to customs data published here on Jan. 23, as the technology slowdown in China shows no signs of abating. Last month's figure is about half of August's high of 127.4 billion yen.

China's orders of Japanese machine tools, used to make devices like smartphones, dropped 56.4% in December, the Japan Machine Tool Builders' Association reported on Jan. 23, for a 10th straight month of declines.

"We do not believe this is the bottom," said association Chairman Yukio Iimura, who also chairs Toshiba Machine.

Partly to blame is a slowdown in U.S. tech companies' building of data centers. Capital investment by Google, Apple, Amazon.com, Microsoft and Facebook fell in the second and third quarters of last year. Data centers require large amounts of memory, much of which is manufactured in China.

China's own tech companies are also suffering, raising the possibility that worsening employment conditions in the sector could blunt consumer spending, further depressing demand for devices like smartphones.

Semiconductor demand is expected to grow in the long term, powered by factors like the expansion of the data economy. But given the uncertainty created by factors like the U.S.-China trade war, some caution that "this downswing may last longer than normal," in the words of analyst Takeru Hanaya at SMBC Nikko Securities.

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