Taiwan’s export-oriented semiconductor and auto part manufacturers are expecting their margins to be affected by large foreign exchange losses as the New Taiwan dollar continued to appreciate sharply against the US dollar yesterday.
Among major semiconductor manufacturers, ASE Technology Holding Co (日月光), the world’s largest integrated circuit (IC) packaging and testing services provider, said that whenever the NT dollar rises NT$1 against the greenback, its gross margin is cut by about 1.5 percent.
The NT dollar traded as strong as NT$29.59 per US dollar before trimming gains to close NT$0.919, or 2.96 percent, higher at NT$30.145 yesterday in Taipei trading after rising 3.07 percent to NT$31.064 on Friday.
Photo: CNA
The Friday rise was the steepest daily increase since 2002.
Dealers said the sharp appreciation of the NT dollar reflected expectations that the US would press Taiwan to allow its currency to rise against the US dollar in a bid to strengthen the competitive edge of US goods.
The pressure was expected to emerge during negotiations between Taipei and Washington as they discuss a “reciprocal” tariff of 32 percent that US President Donald Trump threatened on April 2 to impose on Taiwanese goods.
ASE’s response to the exchange rate volatility echoed that of contract chipmakers Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) and United Microelectronics Corp (UMC, 聯電), as they said they would be hurt by a stronger NT dollar.
TSMC said that whenever the NT dollar rises 1 percent, its operating margin could fall by 0.4 percent, while UMC said its gross margin could drop by 0.4 percent.
Shares in ASE shed 3.6 percent, TSMC lost 1.26 percent and UMC fell 1.31 percent yesterday.
With the NT dollar suddenly appreciating against the US dollar, the local semiconductor and overall electronics sectors face challenges of effectively hedging against foreign exchange risks, a source from the local semiconductor industry said.
Taiwanese tech exporters would also see their bargaining power tested as the value of the NT dollar rises, because their clients would likely request that they adjust their prices accordingly, the source said.
Unlike IC makers, auto part manufacturers, who run relatively low profit margins, could see their profitability more adversely affected by the rapidly appreciating NT dollar.
Tong Yang Group (東陽), an aftermarket replacement auto part supplier, said it was able to take on short-term volatility in the forex market, but if the strong NT dollar continued for longer, the impact on its bottom line would be big.
Tong Yang shares plunged 8.68 percent yesterday.
A source from the auto parts industry said the rapid appreciation of the NT dollar is expected to affect the industry’s profitability in the second quarter.
Meanwhile, the financial sector, especially life insurance companies, would also be impacted by a weaker US dollar, amid fears that the value of their overseas assets would shrink.
Fubon Financial Holding Co (富邦金控) shares shed 5.88 percent, Cathay Financial Holding Co (國泰金控) tumbled 6.81 percent and CTBC Financial Holding Co (中信金控) fell 2.36 percent.
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