Taiwanese technology companies are expected to be moderately hurt by the world’s highest inflation in a decade this year, with laptop computer maker Quanta Computer Inc (廣達電腦) and flat-panel maker AU Optronics Corp (友達光電) seen bearing the brunt, Fitch Ratings Ltd said yesterday.
The ratings agency made the comments in the first inflation risk report produced on the eight local companies it covers.
“We believe the expected increase in inflation globally in 2008 will present a greater cash flow challenge to Taiwanese telecommunications, media and technology companies compared to 2007,” Kevin Chang (張崇人), an associate director of Fitch Ratings at Taipei branch, told a press briefing.
Over the past five years, local companies reported slower growth in cash flow and weaker profitability as rising inflation rates drove up costs, Chang said.
Quanta Computer and AU Optronics may face the highest inflation risk among the six tech firms Fitch rated, primarily due to weaker cost structures, or bigger exposure to emerging markets, which are vulnerable to mounting inflation rates, the report said.
Both Quanta and AU Optronics scored 17 out on a zero-to-25 scale, the report said. The higher the score, the bigger the inflation risks would be.
Chang said Fitch did not plan to cut its outlook on any local firm soon as the recent inflation increase was not significant enough to impact their previous ratings.
Chang gave “BB+/positive outlook” to AU Optronics and “BB/positive outlook” to Quanta.
Taiwan’s consumer price index might jump 3.5 percent year-on-year this year after hitting a 12-year high last month on rising oil prices, Fitch said.
In the US and Western Europe, where local firms export most of their products, the inflation rate may rise to its highest since 1999 to an average of 3.3 percent this year.
“We believe the expected increase in inflation globally in 2008 will present a greater cash flow challenge to Taiwanese telecommunications, media and technology companies compared to 2007,” Chang said.
Overall, local telecommunications, technology and media companies would face medium inflation risk from rising inflation risk, he said, adding that companies relying heavily on oil and commodities such as airlines could be significantly hurt by inflation.
Chunghwa Telecom Co (中華電信), the nation’s largest phone company, scored 8 and may face the lowest inflation risk as the nation’s regulators might allow it to hike tariffs to offset profits eroded by inflation, Chang said.
Local cable TV network Eastern Broadcasting Co (東森電視), 40 percent owned by US private equity fund Carlyle Group, scored the highest of the local firms — 18 — because of its significant funding needs, the report said.
TSMC and rival United Microelectronics Corp (UMC, 聯電) scored 8 and 10 respectively, while PC makers Acer Inc and Asustek Computer Inc (華碩電腦) scored 11 and 15, respectively.
The inflation risk to local telecommunications, technology and media companies is most likely related to their ability to pass along increases in cost, geographic revenues mix, cost structure, capital intensity and refinancing requirement, the agency said.
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