The nation’s semiconductor and electronic component suppliers are hardest hit by the New Taiwan dollar’s appreciation against the US dollar by which they settle accounts with foreign clients, said Taiwan Ratings (中華信評), the local arm of Standard & Poor’s.
As of yesterday, the NT dollar has picked up 6.4 percent against the greenback this year, eroding profit for export-reliant companies, because they set quotes in the US currency, which is worth less when converted into NT dollars, ratings analyst David Hsu (許立德) told a media briefing on Monday.
Many Taiwanese firms supply critical components used in smartphones, computers, tablets, televisions and other consumer electronic goods.
Taiwan Ratings arrived at the observation after carrying out a financial analysis of the nation’s top 50 corporations on condition of a 5 percent pickup in the local currency.
“We believe that exchange rate fluctuations in currencies — the NT dollar, US dollar and Chinese yuan — could erode the profits of leading Taiwanese companies and weaken their overall competitiveness,” Hsu said.
Chipmakers and flat panel suppliers take a bigger hit than consumer electronics vendors, because the latter uses other currencies to acquire materials, Hsu said.
The nation’s economy has become heavily dependent on foreign trade over the past decade, making corporate profits susceptible to foreign currency fluctuations, he said.
The yuan’s depreciation could add uncertainty to Taiwanese firms’ earnings, but firms with significant operations in China can benefit from a weaker yuan, the analyst said.
The Chinese currency has showed signs of stabilization, he said.
On the bright side, Taiwan’s top corporations have sufficient capital to withstand currency volatility, Hsu said.
As a result, an appreciation or depreciation in the NT dollar or yuan of 5 percent might not lead Taiwan Ratings to adjust its risk profiles for those companies, Hsu said.
In addition, the utilization rates of local manufacturers have risen in line with a bump in business demand and selling prices, the analyst said.
“That should help mitigate the negative effects of foreign currency fluctuations,” he said.
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