Mon, Jul 23, 2012 - Page 8 News List

EDITORIAL: Reading between the lines

Many people probably find the use of technological terms like nanometer or abbreviations like DRAM (dynamic random-access memory) in the headlines of newspapers perplexing. It may even be tempting to skip over such technical jargon, but for anyone who wants to know more about the state of the economy, the latest business forecasts from local technological heavyweights are essential reading.

Their comments often give an early glimpse of turning points in the economic cycle. Developments in the chip industry are especially important because the industry is the first link in the electronics food chain and also because Taiwan is one of the world’s top chip exporters.

On Thursday, Taiwan Semiconductor Manufacturing Co (TSMC) chairman and chief executive Morris Chang (張忠謀) said he expected quarterly growth at the world’s top contract chipmaker to more than halve to 8 percent, compared with 20 percent expansion last quarter. Even more worrying, Chang said that he expected “a dip” in the fourth quarter, blaming the “ailing world economy.”

The unusual warning reinforces the pessimism of those economists who believe that the nation’s export and GDP growth will be much weaker than initially forecast and highlights the unwillingness of government officials to admit that the economy is losing steam.

Chang said TSMC would experience an inventory-driven downcycle next quarter and in the first quarter of next year, as it did in 2008.

Perhaps the most recent forecasts are a closer approximation of economic reality. These take the form of a bewildering array of GDP figures that range from the government statistics agency’s optimistic 3.55 percent forecast to the forecast of 1.94 percent annual growth from Academia Sinica, which slashed its GDP growth forecast from the 3.81 percent it predicted in December last year, after axing its forecast for export growth from 5.15 percent to 0.87 percent.

TSMC is the first major technology company to report that performance will decline in the fourth quarter and, given the deteriorating global economy, it is unlikely to be the last. Watch out for more bearish news as earnings reports are released over the next few weeks.

United Microelectronics Corp (UMC) is expected to post a 7 percent increase in revenue quarter-on-quarter on the basis of technological migration and chips that cut the circuit width to 40 nanometers, or even 28 nanometers, followed by a 10 percent contraction next quarter.

UMC and TSMC generate almost half of their revenue making chips for handsets and other communications products. TSMC supplies chips to more than 2,000 clients around the world, with some chips going to gadgets like HTC Corp’s One series and Asustek’s Transformer tablets.

From the perspective of the PC industry, Nanya Technology Corp, which makes DRAMs, volatile memory chips used mostly in PCs to temporarily store data, on Wednesday forecast an unusually flat third quarter, bucking the standard growth expected during the back-to-school shopping season.

The company said the slowing global economy was dragging down PC demand.

With such a discouraging outlook for the communications and PC sectors, it is highly unlikely that the nation’s economy will escape unscathed.

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