Taiwan as barometer for health of consumer electronics sector

By Dominique Numakura

The Tankan Survey is a popular economic survey of Japanese businesses issued by the central bank of Japan. The report is released four times a year in April, July, October, and December. The survey focuses of companies with a specified minimum amount of capital, and is a valuable tool to determine market trends.

One drawback from this survey is the age of the data. Since the report is released quarterly, the marketing data is already four months old – a lot can happen in a quarter. Another drawback is the data is inclusive of just Japanese businesses; it does not give a snapshot of global markets.

For these reasons, the Purchasing Manager Index (PMI) and the Book-to-Bill Ratio (BB Ratio) have become very popular indices to predict future market trends. Data is released monthly, but there are wide gaps between purchasing plans and sales budgets for manufacturing companies. For this reason, we have to be very analytical when referencing both these indexes.

My personal preference to measure sales and predict future trends is the actual shipments of printed circuits from manufacturers in Taiwan. Taiwan has become a manufacturing center for the global consumer electronics industry.

More than 90% of the personal computers are manufactured by Taiwanese companies, and almost 100% of game consoles are assembled here.

Apple’s products are all manufactured by EMS and OEM companies in Taiwan. The Taiwanese manufacturers outsource many parts in overseas plants, mostly from Mainland China.

Taiwanese electronics manufacturers purchase most of their printed circuits from Taiwanese companies. Circuit manufacturers have large manufacturing capacities in China. It is important to note that these overseas productions are included in shipment data for Taiwan.

Publicly traded companies in Taiwan release earnings on a monthly basis, and there are 40 publicly traded companies that derive income from producing printed circuits.

Eight of them are flex circuit manufacturers, and I estimate the total revenue for these 40 manufacturers represent more than 80% of the Taiwanese production. Printed circuits are custom designed products, so these manufacturers produce products based on purchase orders or accurate forecasts provided by their customers. his is the reason I review revenue data from these publicly traded companies every month. Revenue data is also valuable to forecast business trends.

These manufacturers provide guidance for their shareholders that include progress from prototype production and production schedules from large customers.

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Total revenue from Taiwanese circuit manufacturers is steady, and grows year over year. Revenues drop sharply in February because of the long vacation from the Chinese New Year, but it returns to normal levels and grows throughout the fourth quarter. However, this year’s revenue trend is different from previous years.

Asia hourly manufacturing wages vs developed economies
South East Asian manufacturing strategy
Asia labor costs and China manufacturing relocation impact considerations

The sharp drop in February was there, but the rebound in March was smaller than expected. Revenue declined in April and May, and is negative compared to the same months last year. Sales from flex circuits are higher than rigid boards because of the strong demands from smart phones (flex circuit sales are higher this month compared to the same month last year).

Revenue from rigid boards are posting a double digit decline compared to the same month last year. Equipment manufacturers and printed circuit manufacturers released pessimistic forecasts for the second half of the year. They blame their pessimism on slow sales from personal computers, and they expect a negative growth from tablet PCs this year.

I mentioned earlier that the business trends for the printed circuit industry in Taiwan represent the global market trends for consumer electronics. For this reason, I do not have an optimistic outlook for the consumer electronics industry this year. Hopefully, there will be a turnaround over the next few months.

I will keep you posted on business trends in Taiwan.

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