It is difficult for Taiwanese electronics firms to pull out of China, as the personal computer industry has built a stable supply chain there over the years, industry leaders said yesterday.
Local electronic firms with production lines in China could face a sharp earnings challenge if Washington next month extends tariffs to US$300 billion of Chinese goods, including smartphones and notebooks.
Compal Electronics Inc (仁寶電腦) chairman Rock Hsu (許勝雄) said that relocating supply chains is a difficult and time-consuming process, as it requires a massive transfer of personnel and depends a lot on technology brands.
Photo: Lee Ya-wen, Taipei Times
Taiwan is home to the world’s largest suppliers of electronic components used in laptops and mobile devices.
Hsu made the comments at the monthly gathering of the Third Wednesday Club, a trade group of which he is also chairman.
The Ministry of Economic Affairs has said that local firms should build a “non-red supply chain” in Taiwan and Southeast Asia to cope with escalating tariffs between the US and China.
The trade dispute could last for a while and pose a serious challenge on the earnings ability of Taiwanese technology firms that have benefited from global outsourcing at low profit margins, Hsu said.
Hsu cited contract laptop maker Quanta Computer Inc (廣達電腦) as an example, saying that the company squeezed a net profit margin of 1.41 percent in the first quarter and would have difficulty absorbing a tariff hike if levies were to increase from 10 to 25 percent.
Contract electronics makers have a slim, if not impossible, chance of demanding higher prices to offset the tariff hikes, he said.
“What we can do is discuss with clients where products should be manufactured to meet cost-efficiency needs,” Hsu said.
Apart from cost concerns, the government’s point of view also carries weight when making such decisions, he said.
The PC supply chain involves between 1,000 and 2,000 components, and companies have built a stable supply chain in China for more than a decade, Hsu said.
Third Wednesday Club vice chairman Lin Por-fong (林伯豐) said that the government should address the shortage of land, electricity, water and unskilled labor if it is serious about attracting firms.
Powerchip Group (力晶集團) chairman Frank Huang (黃崇仁) said that his company has been unable to find land to expand capacity.
Electricity supply could pose another challenge and his company would wait to see what happens, he said.
So far this year, 52 companies have pledged to invest more than NT$270 billion in Taiwan as part of a three-year government program to assist Taiwanese companies operating in China to move production lines back home, according to the Ministry of Economic Affairs.
Minister Without Portfolio Kung Ming-hsin (龔明鑫), who is in charge of economic affairs, said that after Taiwan, Vietnam and India are the next most preferred destinations for Taiwanese electronics companies.
“Taiwanese companies may bring production of key, high-value components back home, but assembly and mass production of gadgets will go to Southeast Asia,” Kung said in an interview with Bloomberg on Tuesday.
However, Kung and some of Taiwan’s biggest tech companies share the concern that Southeast Asia’s electronics manufacturing ecosystem still has some way to go before it can rival China’s.
“If a product line is moving, the whole supply chain needs to move together. There needs to be a cluster,” Quanta vice chairman C.C. Leung (梁次震) said on Tuesday.
Additional reporting by Bloomberg
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