TAIPEI — A truce in the bitter trade war between the U.S. and China may come too late for Taiwanese manufacturers caught in the crossfire, with companies from electronics to machine tool makers racking up losses and preparing for a tough 2019.
The conflict has knocked Asustek Computer, until recently the world’s No. 4 personal computer maker, into its first quarterly loss in nearly a decade. At Chunghwa Picture Tubes, a maker of midrange and low-end mobile displays, currency headwinds raised by the trade tensions drove the company to seek bankruptcy protection last month.
Even leading high-tech companies such as iPhone assemblers Hon Hai Precision Industry and Pegatron, as well as machine tool parts supplier Hiwin Technologies, have signaled that this year will be difficult.
“Although it seems the trade tensions between the U.S. and China have eased slightly, the economic outlook for 2019 does not appear too promising,” said Hiwin Chairman Eric Chuo. “Some smaller Taiwanese machine tool makers even started to give employees unpaid leave due to their greater exposure to the Chinese market.”
Asustek’s struggle highlights the sensitivity of electronics companies to the current geopolitical tensions. The PC maker is forecasting its first quarterly net loss in almost a decade, for the quarter ended Dec. 31. “Operations have slumped to a low point in the past two years,” Chairman Jonney Shih said as he bowed in apology at a news conference on Dec. 13.
It was the second time in 2018 that the 66-year-old chairman had to apologize publicly. In June, Shih announced to shareholders at the annual meeting that he had decided indefinitely to postpone his retirement. With Asustek’s business struggling, Shih explained that he did not feel comfortable handing the company over to a successor.
Founded as a motherboard manufacturer in 1989, Asustek spun off its contract manufacturing business to Pegatron in 2008 to focus on its branded products. Asustek has ranked in the world’s top five PC vendors since, with annual shipments of its own brand reaching as high as 20 million units.
As recently as 2015, its smartphone brand ZenFone held big shares in emerging markets such as Brazil, Russia, India, Indonesia and the Philippines.
But increased competition from mainland Chinese smartphone makers caught Asustek off guard, dashing hopes that its smartphones would be a new growth engine to make up for a steady decline in the PC segment.
Shortages of key components, including Intel central processing units, weighed heavily on production in 2018, and the company fell out of the ranks of the top five PC vendors by shipments, according to data from market researcher IDC.
The trade spat between the U.S. and China has exacerbated Asustek’s existing problems, undermining its restructuring efforts. “The trade war between the world’s two biggest economies has hit emerging market currencies badly and really dragged on our profitability,” CEO Jerry Shen Chen-lai said in November.
Faced with uncertainty over the impact on demand for its products, Asustek decided to book 6.2 billion New Taiwan dollars ($202 million at current rates) in one-time charges for its smartphone business in the October to December quarter, lowering earnings by NT$8 per share and pushing the company into a net loss. Asustek revenue shrank 9.77% on the year to NT$391.55 billion for the whole year in 2018.
Tseng Kuohan, an analyst at Taipei-based research specialist TrendForce, said Asustek’s PC business relies more heavily on consumer notebooks than devices for business or government use, which makes the company vulnerable to economic fluctuations.
“We don’t think the impact from the trade war will go away anytime soon, and we expect the notebook market to stay lukewarm in 2019,” Tseng told the Nikkei Asian Review. “All companies need to deal with uncertainties brought on by the trade war in 2019, and the lives of smaller notebook makers will be tougher than those of bigger players.”
Asustek’s local peer Acer also saw its net profit fall more than 37% from a year ago for the July-September quarter.
The trade war is putting pressure not only on PC makers, but also on liquid crystal display panel manufacturers, which were already struggling in 2018.
Chunghwa Picture Tubes, which was Taiwan’s first LCD panel maker in the 1970s, filed for bankruptcy protection on Dec. 13 after it was unable to pay debts of NT$12.7 billion. Chunghwa’s suppliers cut off shipments of components for nearly 10 days after the company announced it was restructuring, according to its filing with the Taipei stock exchange. Nearly 2,000 Chunghwa workers on the island were affected when production was suspended.
The group’s troubles continued this week when Bank of Taiwan put Chunghwa on notice that it had a legal right to claim the company’s assets if it failed to repay a short-term loan.
“We have felt the heat from the trade war since the second half of 2018. The sharp depreciation of the yuan against the dollar hurt our Chinese clients’ willingness to buy panels from us,” a spokeswoman at Chunghwa said. She added that Chunghwa is unable to give a clear outlook as existing orders may be affected by the company’s restructuring plan.
Chunghwa laid off 63 employees in Taiwan following its restructuring announcement.
Other Taiwanese panel makers have also suffered serious declines in revenue and profits in 2018 due to a glut in the market caused by their Chinese competitors.
HannStar Display, a mobile phone panel maker, saw its profit dive nearly 76% in the July-September quarter from a year ago, with revenue down 38%. Net profits at big panel makers AU Optronics and Innolux fell 51% and 78%, respectively, in the same period.
Paul Peng, AU Optronics’ chairman, said tougher conditions are ahead.
“We were starting to see things turn toward the conservative end since the second half of , especially for the macroeconomic outlook,” Peng said in December on the sidelines of an industry event. “The trade war will cast more uncertainty on market demand in 2019.”
“No one would be immune from a full-blown trade war,” Ray Lin, an analyst at IDC, told Nikkei. “It is testing all these companies’ capability to plan ahead and diversify the supply chain.”