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Taiwan techs dragged down by MacBook delays and slow iPhone 7 sales

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MediaTek chips under development   © Reuters

TAIPEI -- Taiwan's major technology firms, a gauge of global electronics demand, saw falling revenues for the second consecutive month in October compared with a year ago, mainly due to a delay in the release of Apple's new Macbook Pro range and waning sales of its 4.7-inch iPhone 7 smartphone.

In October, sales of 12 out of 19 Taiwanese information technology companies on the Nikkei Asian Review's watchlist dropped year-over-year, with four of them posting double-digit declines. On average, their revenue tumbled 6.36% from a year ago.

The companies' sales have been hurt by unfavorable changes in the foreign exchange rate. Seven out of nine Apple suppliers on the NAR's list posted a slump in sales in October and all of them put together earned 7.44% less than in the year-ago period.

Monthly revenue for key iPhone assemblers Hon Hai Precision Industry and Pegatron slipped 6.17% and nearly 14%, respectively, in October from a year ago.

"Pegatron's revenue dropped more than Hon Hai because the company makes only the 4.7-inch iPhone 7, which is suffering from weak demand as there is no substantial innovation in this smaller model," said Arthur Liao, an analyst at Fubon Securities in Taipei.

Although demand for the jet-black 5.5-inch iPhone 7 Plus, which is assembled by Hon Hai, looks more healthy, quality issues with its metal casing and dual cameras have kept supply tight, said Liao.

For all of 2016, Apple will ship 206 million iPhones, compared with 230 million a year ago, according to Liao.

Sales at Largan Precision, a major provider for iPhone's new dual camera lens, fell 12.06% from a year ago. Chief Executive Adam Lin told investors in October that though the company's utilization rate was full, the yield rate for new products had not reached satisfactory levels and needed to improve. The yield rate measures the amount of satisfactory units coming out of a batch of components produced.

Major MacBook maker Quanta Computer saw its revenue dive 24.62% year-over-year as the company's major customer Apple postponed the launch of the new MacBook Pro models to late October, reportedly four months later than originally planned.

However, even though most Taiwan-based Apple suppliers have seen some setbacks, the trade-reliant island's exports still grew 9.4% year-over-year in October.

"The only growth engine this year in Taiwan is all related to the chip supply chain," said Gordon Sun, a veteran economist at the Taiwan Institute of Economic Research. "Otherwise, we did not see any substantial economic drivers so far this year."

In October, the best performers were still semiconductor companies; however, the robust growth in previous months has slowed. The average revenue of five chip providers increased 7% year-over-year, compared with a surge of almost 30% both in September and August.

MediaTek, the largest mobile chip provider to China, saw its sales rise 7% on the year for October. For the three months ending in September, the company's revenue advanced 37.6% from a year ago thanks to robust growth momentum from Chinese smartphone clients Oppo and Vivo.

Hsieh Ching-Jiang, vice chairman of MediaTek, said in the current October-December period his company's market share could drop slightly as its biggest rival Qualcomm has snatched some business from Oppo and Vivo, with its higher-end chipsets that are eligible for subsidies from Chinese operators.

Taiwan Semiconductor Manufacturing Co., the world's largest contract chipmaker, saw October revenue continue to grow, rising 11.43% on the year. TSMC's smaller rival United Microelectronics also reported a 6.42% gain in sales in the same period.

Revenue of Advanced Semiconductor Engineering, the world's largest chip assembler and a supplier for Apple, however, dropped 6.55% year-over-year in October due to competition from Chinese rivals, such as Jiangsu Changjiang Electronics, and slowing demand for the Apple watch and the new iPhone 7 range.

Analysts also warned that chip assemblers such as ASE could be most vulnerable if U.S. president-elect Donald Trump fulfills his promise to take a strong stance against his country's Asian trade partners, encouraging U.S. companies to make goods at home. Two-third of ASE's revenue comes from U.S. clients.

"ASE is exposed to this risk, as Amkor of the U.S., the world's No. 2 chip assembler, is a direct competitor with similar technologies and capacity," said Mark Li, an analyst at Sanford C. Bernstein. "The time and cost to switch a chip assembler is much shorter and lower than to suddenly change a foundry partner such as TSMC."

Nikkei staff writer Chien Chia-hung in Taipei contributed to this report.

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