Mon, Jun 03, 2019 - Page 16 News List

ODMs to speed up plans after Mexico threat

By Chen Cheng-hui  /  Staff reporter

Taiwanese hardware makers are expected to hasten their global production adjustment plans to diversify risks in view of rising trade tensions, KGI Securities Investment Advisory Co (凱基投顧) said in a report on Friday.

Local original design manufacturers (ODMs) have been shifting production from China to other countries since the second half of last year, due to a US-China trade dispute.

However, US President Donald Trump’s threat last week to impose gradually increasing tariffs on Mexico could accelerate companies’ plans, KGI analyst Angela Hsiang (向子慧) said on Friday.

Trump on Thursday said that the US would impose a 5 percent tariff on all Mexican imports, effective on Monday next week, unless the country takes action to deter the flow of Central American migrants crossing into the US.

The tariff would be raised to 10 percent on July 1 and would be increased 5 percentage points each month until it reaches 25 percent in October if Mexico fails to fulfill the demand, the Trump administration has said.

“Currently, most Taiwanese ODMs have operational bases in Mexico — except Quanta Computer Inc (廣達) — focusing mainly on the final assembly of servers and TV sets. Based on our understanding, these ODMs might relocate to the US if their clients don’t want to absorb rising costs, or shift to other places including Taiwan, as well as Vietnam and Indonesia in Southeast Asia,” Hsiang said.

However, any move might suggest rising labor and transportation costs, which would likely push prices up and negatively affect end-market demand, she said.

Among major Taiwanese ODMs, Wiwynn Corp (緯穎) has the highest revenue exposure to Mexico, the report said.

The cloud computing equipment maker assembles servers at its Mexican plants and ships them to the US, it said, adding that the business contributes about 65 to 70 percent to the company’s total revenue.

However, as Wiwynn’s plants are in tax-protected zones, likely US tariffs are not expected to have an effect on the company, although it is still preparing to add a new production base in Tainan, KGI said.

Mexico’s tax-protected zones, which are similar to free-trade zones, are one of several major policy measures taken by the nation to attract foreign investment.

Other ODMs with operational bases in Mexico include Inventec Corp (英業達), Compal Electronics Inc (仁寶), Pegatron Corp (和碩) and Wistron Corp (緯創), the report said.

Inventec is considering shifting its server assembly lines to the US or Taiwan, as about 20 percent of its revenue might be affected by Trump’s tariffs, it said.

While Compal has less than 2 percent revenue exposure to Mexico and Pegatron’s exposure is lower than 0.5 percent, any US tariffs would speed up the companies’ production diversification plans, it said.

“Currently, Taiwan, Vietnam, Indonesia and Malaysia are the favored places for Taiwanese ODMs looking to relocate,” Hsiang said.

For instance, Quanta, Inventec, Wiwynn and Compal favor Taiwan, Compal and Hon Hai Precision Industry Co (鴻海精密) are interested in Vietnam, while Pegatron and Inventec have been looking for opportunities in Indonesia and Malaysia respectively, she said.

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