Taiwanese manufacturers are struggling to resist a double whammy of macroeconomic headwinds and mounting manufacturing costs from overseas production lines as the globalization of trade falls apart. The impact has deepened of late as most local companies found that they might be caught up in an “L-shaped” recovery, with a business rebound still up in the air.
Even large companies such as Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s largest contract chipmaker with a 60 percent share of its addressable market, found it hard to resist the external environment’s adverse impact. The deterioration in the chipmaker’s revenue outlook offers a glimpse into the challenges and pain faced by local companies.
TSMC last week cut its revenue forecast for this year for the second time and projected that its revenue would dip about 10 percent from last year, rather than up to a 5 percent slump. The revision is unprecedented and rare, as business should have returned on track because customers are reducing their inventory to a healthy level this quarter, as TSMC has anticipated.
The chipmaker attributed the setback to persistently weak macroeconomy and a disappointing economic recovery in China, which depressed consumers’ demand for consumer electronics, from smartphones to PCs. China is the second-biggest market for TSMC, accounting for 12 percent of the chipmaker’s total revenue in the second quarter, down from 15 percent in the first quarter and 13 percent in the second quarter last year.
Aside from that, consumers are less willing to lavish on nonessential or big-ticket items amid soaring inflation and central bankers’ hikes of key interest rates to contain runaway consumer prices, the chipmaker said.
Under such an unfavorable business environment, TSMC said customers tend to be cautious about rebuilding inventory, and prefer to keep chip stock slim through the fourth quarter this year.
Even strong artificial-intelligence (AI) chips demand from Nvidia Corp and other chip designers cannot help TSMC fend off the macroeconomic headwinds and escape the first revenue decline in four years. TSMC expects the AI chip market to expand at an annual compound growth rate of 50 percent in a five-year period.
The firm last week also said it is expanding its global manufacturing footprint in response to customers’ request to boost supply resilience amid escalating geopolitical risks. TSMC counts Apple Inc as one of its major clients. The chipmaker is building a new, advanced factory in Arizona, but progress has lagged far behind its schedule.
TSMC last week postponed operating the Arizona fab to 2025, from the end of next year, due to a lack of skilled technicians to install manufacturing equipment. The firm said it has sent experienced technicians from Taiwan to train US workers, but it still cannot ramp up production of 4-nanometer chips as scheduled.
The firm has not also reached an agreement with the US on subsidies, which TSMC deems essential to help it “narrow the cost gap” through Washington’s Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act. TSMC founder and former CEO Morris Chang (張忠謀) in March said that TSMC’s US fab cost was twice as expensive than its Taiwan fabs cost. Many semiconductor supply chain suppliers are reluctant to build new production lines in the US, as they are unable to overcome the pressure of high labor and operational costs.
In the past, local manufacturers benefited from globalization, and could make cost-effective components and devices for customers by leveraging factories in lower-labor cost countries. The tide has changed. As the US, the EU and Japan intend to build local supply chains, Taiwan’s manufacturers must allocate production to areas with higher manufacturing costs, and that lack a skilled and diligent workforce. Local companies require wisdom to solve the thorny problems of cost increases and tepid demand.
When US budget carrier Southwest Airlines last week announced a new partnership with China Airlines, Southwest’s social media were filled with comments from travelers excited by the new opportunity to visit China. Of course, China Airlines is not based in China, but in Taiwan, and the new partnership connects Taiwan Taoyuan International Airport with 30 cities across the US. At a time when China is increasing efforts on all fronts to falsely label Taiwan as “China” in all arenas, Taiwan does itself no favors by having its flagship carrier named China Airlines. The Ministry of Foreign Affairs is eager to jump at
The muting of the line “I’m from Taiwan” (我台灣來欸), sung in Hoklo (commonly known as Taiwanese), during a performance at the closing ceremony of the World Masters Games in New Taipei City on May 31 has sparked a public outcry. The lyric from the well-known song All Eyes on Me (世界都看見) — originally written and performed by Taiwanese hip-hop group Nine One One (玖壹壹) — was muted twice, while the subtitles on the screen showed an alternate line, “we come here together” (阮作伙來欸), which was not sung. The song, performed at the ceremony by a cheerleading group, was the theme
Secretary of State Marco Rubio raised eyebrows recently when he declared the era of American unipolarity over. He described America’s unrivaled dominance of the international system as an anomaly that was created by the collapse of the Soviet Union at the end of the Cold War. Now, he observed, the United States was returning to a more multipolar world where there are great powers in different parts of the planet. He pointed to China and Russia, as well as “rogue states like Iran and North Korea” as examples of countries the United States must contend with. This all begs the question:
In China, competition is fierce, and in many cases suppliers do not get paid on time. Rather than improving, the situation appears to be deteriorating. BYD Co, the world’s largest electric vehicle manufacturer by production volume, has gained notoriety for its harsh treatment of suppliers, raising concerns about the long-term sustainability. The case also highlights the decline of China’s business environment, and the growing risk of a cascading wave of corporate failures. BYD generally does not follow China’s Negotiable Instruments Law when settling payments with suppliers. Instead the company has created its own proprietary supply chain finance system called the “D-chain,” through which
RSS