Taiwanese manufacturers are facing unparalleled headwinds this year, stemming from heightened tensions in the Taiwan Strait, continuing global economic uncertainty and the lingering effects of the COVID-19 pandemic. Still, they are trying to keep investing in technology and new product development, even though many of them, especially those with greater exposure to the consumer electronics sector or the Chinese market, have a gloomy outlook amid expectations of severe order cuts and revenue declines.
Behind this investment drive is the belief that maintaining technological leadership and innovation is the only way to survive downcycles, especially in the face of heated competition from Chinese rivals. Local companies hope to maintain spending discipline to seize growth opportunities. Technological leadership is the most important tool for a business to protect itself — and the nation, an industry veteran has said.
Taiwan Semiconductor Manufacturing Co (TSMC) serves as a good example. Thanks to relentless research and development efforts, and huge amounts of investment over the past few years, TSMC has surpassed Intel Corp in foundry technology, making itself indispensable to the global semiconductor supply chain.
TSMC’s achievement has inspired other local companies in the industry, which have undertaken technology and innovation upgrades, although these efforts are much smaller in scale.
Vanguard International Semiconductor Corp, a supplier of display driver ICs and power management chips, has trimmed its planned capital spending this year — from NT$24 billion (US$800 million) to a still-robust NT$23 billion, despite flagging customer demand, which is expected to push down quarterly revenue by 16 percent this quarter.
Factory utilization is expected to fall to about 83 percent, which would have signaled a lower gross margin previously. However, things have changed. Vanguard expects gross margin to remain high at about 45 percent, thanks to its improved capability to supply mature technologies at optimal costs. The strategy has over the past two years allowed the chipmaker to enjoy better average selling prices and profit margins amid surging demand due to a chip crunch.
Novatek Microelectronics Corp, a supplier of display driver ICs, is another case. Last week, it said that revenue would plunge as much as 39 percent this quarter, as customers cut orders amid tepid demand for smartphones and other consumer electronics due to the global economic upheaval. However, it is not giving up designing and selling new display driver chips used in OLED panels for tablets and notebooks. As part of its efforts to diversify its business, Novatek is making inroads into electric vehicle supply chains — an area that could help it weather macroeconomic headwinds.
PC vendor Asustek Computer Inc last week unveiled a project to cultivate start-ups that focus on 5G-related applications by offering a comprehensive and cost-efficient platform. The company has not set a financial target in the short-to-medium term, as the project would take time to bear fruit, because it relies on selling technological innovation to users.
It is heartening to see local companies energetically capitalizing on technological innovation and keeping faith in the industry’s long-term growth. Their efforts alone might not be enough to fend off macroeconomic headwinds, as geopolitical tensions complicate the situation. However, continuous investment in innovation might open the doors to a new realm of growth.
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