Local electronics manufacturers have kept a watchful eye on the NT dollar's appreciation against the currency of the US -- the country to which they export a major portion of their products.
Hedge measures have prevented fluctuations in the exchange rate from hurting manufacturers' bottom line over the past three or four years, when the NT dollar moved in a narrow range.
Recently, however, the local currency has appreciated more dramatically. This has raised concerns among investors that corporate profits could be eroded, prompting corporate executives to review their hedge tactics.
"We will set up a [new] risk control mechanism," Joseph Shieh (
Shieh's remarks came after the nation's top phone company said it suffered NT$4 billion (US$130 million) in losses over the past six months, stemming from a 10-year foreign-exchange derivatives contract.
Chunghwa Telecom said the losses might narrow to NT$1.5 billion by the time the contract, which was intended to hedge against volatility in the foreign exchange market, becomes due in 2017.
The NT dollar had strengthened to NT$30.748 against the greenback yesterday, up 5.22 percent from NT$32.443 on Jan. 2. Traders say the appreciation is in part the result of the central bank no longer intervening because of its desire to contain inflation.
Rock Hsu (
"The group's companies adopt natural hedge measures by selling and buying foreign exchange options that last for only three months," he said.
Hsu said the group aimed to keep losses or gains as a result of currency fluctuations within a range between NT$100 million and NT$200 million a year.
Nevertheless, analysts have lowered their forecasts for the local industry.
Citing a stronger NT dollar, an analyst who requested anonymity yesterday reduced his forecast for Compal's net profits this year by 4.3 percent, from NT$13.49 billion to NT$12.92 billion.
Compal said exchange losses were NT$28 million last year, down dramatically from NT$341 million in 2006.
"Fast appreciation of the NT dollar will erode operating income for local electronics companies, which make revenues mainly from the US market, in the first quarter," said Eddy Tseng (曾可加), a PC industry analyst with SinoPac Securities Corp (永豐金證券).
A 3 percent appreciation in the NT dollar against the US dollar erases between 5 percent and 10 percent in local electronics companies' operating income, Tseng said.
Casting a "no-confidence" vote on Compal president Ray Chen's (陳瑞聰) bid to maintain margins, Tseng estimated that the company's gross margin would decline to 4.7 percent this quarter from 4.9 percent last quarter.
Only companies such as Acer Inc that sell brandname products or make revenues mostly from the European market might benefit from a weaker US dollar, Tseng said.
In addition to increasing orders, it is important for corporate executives to limit the impact of foreign exchange fluctuations, he said, adding that the weakness of the US economy meant the NT dollar could remain relatively strong against the US dollar for the rest of the year.
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