The nation’s high-tech sector is likely to invest conservatively this year because of persisting weak demand amid the global economic slowdown, the Standard & Poor’s (S&P) Ratings Services said in its latest industry report.
“Most rated high-tech firms have sufficient financial flexibility to cope with further market turbulence in 2012, but an extended market downturn could still severely damage their credit quality,” S&P credit analyst Daniel Hsiao (蕭黎明) said in a statement yesterday.
“We expect a growing number of rated Taiwanese high-tech firms to expand their reserves in 2012, to guard against a potentially long market downturn,” he said.
The report, titled Taiwan’s High-Tech Firms Are Hoarding Cash To Cushion Against Weak Demand In 2012, said weakening global demand last year aggravated the lengthy oversupply in the LCD panel and DRAM chipmaking sectors, leading to falling average sales prices and heightening margin pressures for many major players in both sectors.
S&P said a lengthy demand slump could weaken the credit quality of some high-tech sub--sectors and potentially push forward market consolidation over the next four quarters.
Economists and industry experts have said one of the main challenges facing President Ma Ying-jeou (馬英九) in his second term in office is helping to consolidate ailing domestic industries, such as the LCD and DRAM sectors, in a bid to help them better compete with foreign rivals in South Korea.
Last week, Taiwan Ratings Corp (中華信評), the local arm of S&P, lowered the corporate credit ratings on Chimei Innolux Corp (奇美電子) to “twB/twB” from “twBBB/twA-3” and put the firm’s “twB” long-term and short-term ratings on CreditWatch with negative implications, after the nation’s largest LCD panel maker began debt restructuring negotiations with its creditor banks.
The negative business environment has also forced DRAM chipmaker Powerchip Technology Corp (力晶科技) to gradually exit the DRAM business and shift its focus on to the less advanced NAND flash memory, while debt-ridden ProMOS Technologies Inc (茂德科技) is still in debt restructuring talks with lenders.
“We believe that rated DRAM and LCD panel makers will continue to experience very weak performance over the next two quarters because of continued oversupply and weak product pricing,” Hsiao said. “Nonetheless, parent support, as well as ample liquidity in Taiwan’s financial sector, could help to reduce players’ liquidity risk.”
The report said Taiwanese semiconductor foundries, led by Taiwan Semiconductor Manufacturing Co (台積電) and United Microelectronics Corp (聯電), showed the strongest credit profiles among local high-tech firms, thanks to their strong global market positions, leading process technology and conservative financial policies.
Hon Hai Precision Industry Co (鴻海精密), the world’s biggest electronics manufacturing service (EMS) provider, and its local peers have not escaped the impact of volatile global market, the report said.
The performances of rated firms in the EMS sector are likely to diverge further over the next two quarters, the report said, citing differences in the companies’ production scale, product competitiveness and cost reduction capabilities.