Taiwanese technology firms may see only limited improvement in their business next quarter and beyond, despite the advent of the high season as demand for premier mobile devices matures and PC shipments continue to worsen, senior analysts at UBS Securities said yesterday.
The analysts made the comments on the sidelines of the annual Taiwan Conference, a major event for institutional investors.
“The [US Federal Reserve’s] exit strategy poses the biggest uncertainty for the local bourse,” said William Dong (董成康), equities and research head of UBS Securities Taipei.
Dong’s remark came a day after his company trimmed its TAIEX year-end target to 8,000 from 8,650, citing concerns over a liquidity flight. The benchmark index closed up 99.10 points, or 1.27 percent, at 7,883.90 yesterday.
UBS Securities remains positive about electronic component suppliers and financial services providers, as the former may benefit from fledgling demand for low-priced mobile devices and the latter may start to emerge from the ultra-low interest rate environment, Dong said.
However, the local bourse is likely to consolidate in the short term until global markets better cope with the Federal Reserve’s signals that it is gradually winding down its quantitative easing measures, Dong said.
The consolidation also comes as foreign institutional investors become less enthusiastic about dividend payouts this year, with dividend yields averaging 3 percent compared with 4 percent the previous year, he said.
The local bourse has witnessed a sharp pullback in the past month amid uncertainty about the global economy and lackluster sentiment in Taiwan, but Deutsche Bank strategist Joelian Tseng (曾慧瓊) said market fundamentals would gain support from the New Taiwan dollar’s depreciation, changes to the capital gains tax, better corporate earnings forecasts, the economic recovery in the US and expanding cross-strait trade ties.
“A key policy risk would be the outcome of the potential nuclear power plant referendum,” Tseng wrote in a note yesterday.
As for sector plays on the main bourse, Jonah Cheng (程正樺), chief semiconductor analyst at UBS Securities, is concerned about inventory adjustments at chipmakers, as well as IC packaging and testing firms, in the fourth quarter if new premier smartphones fail to wow users after lackluster sales so far this year.
However, low-end smartphones may fare much better as the market is not yet saturated, a trend that bodes well for the nation’s handset chip designers, Cheng said.
“Faster processors are good, but they may not be the most important feature that drives sales,” he said.
Chipmakers in possession of advanced technology may then hit a bottleneck, he said, alluding to Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s largest contract foundry.
Furthermore, Intel Corp, the world’s largest maker of chips for PCs, has unveiled plans to move into the mobile arena, a move that may weaken the shares of Taiwanese chipmakers and designers, although the impact may not be evident until the fourth quarter or next year, Cheng said.
In Taipei trading yesterday, TSMC shares rose 2.96 percent to close at NT$104.5, while shares of its rival, United Microelectronics Corp (UMC, 聯電), gained 7 percent, the maximum daily increase, to close at NT$14.45 after Morgan Stanley Taiwan Ltd issued an “overweight” recommendation.