Electronic manufacturing service providers and electronic component suppliers with significant operations in China would be the hardest hit in Taiwan by the effects of an outbreak of COVID-19 in China should the virus prove more difficult to contain, Taiwan Ratings Corp (中華信評) said.
Taiwanese electronics manufacturing service providers include Hon Hai Precision Industry Co (鴻海精密) and Pegatron Corp (和碩), which are major iPhone assemblers for Apple Inc and have a significant presence in China, which is also an important production base for Taiwanese electronic component makers, who are already affected by shut factories and travel restrictions in China.
“These companies could also face labor shortages and logistical difficulties even after the resumption of operations,” Taiwan Ratings said in a report on Wednesday.
The adverse effects would extend to shortages in raw materials and key components for manufacturing facilities, the local arm of Standard & Poor’s (S&P) Global Ratings said.
While some electronics suppliers resumed work on Feb. 10, their operations had slim chances of returning to full capacity by the end of the month, given labor and protective-medical gear shortages, it said.
The first half of the year is typically considered the low season of the production cycle for most electronics goods, which could partly alleviate the negative effects from underutilized factories, the report said.
The Chinese government is also likely to assist key industries, including the technology sector, to maintain normal operations and minimize the economic effects of the coronavirus outbreak, it said.
Taiwan Ratings said that the degree of risk facing Taiwanese companies varied by industry.
A sharp decline in consumer spending in China could stifle short-term demand, particularly for discretionary consumables, such as smartphones and vehicles, while semiconductor firms could be hit by a drop in shipments and sales in the short term due to supply chain disruptions, it said.
Chung-Hua Institution for Economic Research (CIER, 中華經濟研究院) said that disruptions in raw material supplies from China, as well as from the slow return of workers to factories, could hurt many industries in Taiwan, such as the semiconductor, information and communications technology, biotech, and flat-panel sectors.
Meanwhile, as China is the largest buyer of Taiwan-made goods, accounting for about 40 percent of Taiwan’s exports, weaker demand in China amid the virus outbreak would likely hurt Taiwanese producers of petrochemicals, machinery, plastics and base metals, CIER vice president Wang Jiann-chyuan (王健全) told the Central News Agency on Friday.
Taiwan Ratings said that it has not yet taken any rating actions against rated companies, saying that those firms have sufficient cash flow and leverage headroom to buffer the short-term revenue and shortfalls in cash flows.
“We expect more tech companies to diversify their reliance on China as a manufacturing hub and introduce reshoring plans or shift production to other countries in Asia,” Taiwan Ratings said.
In addition, considering the potential effects of the COVID-19 outbreak, S&P Global has trimmed its GDP growth projection for Taiwan to 1.9 percent for this year, but revised upward its projection to 2.6 percent for next year, citing additional economic activity that might emerge to catch up for lost output.
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