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  • Bloomberg

    Tech's June Jump May Lead to December Disappointment

    (Bloomberg Opinion) -- I wrote about a set of data in late May that portended a rebound in the tech sector. Now, I think some pain may ensue.Specifically, I drew on Taiwan monthly sales, which listed companies are required to report. This information is unique because it’s one of the few sets of data globally that gives visibility into the sector before quarterly numbers are released. The figures pointed to a revenue bounce, which occurred last month.These same data for June showed that semiconductor makers posted an aggregate 27% rise in sales from the previous year, while the category of electronics products distribution climbed an aggregate 10.7%. Companies in electric machinery, electrical and cable, optoelectronics, and computer and peripherals all posted their best month this year.But the data also suggest we’ve experienced more of a June Jump than a sustained recovery. Further, it appears limited to only a slice of the hardware sector — chips and PC products.A category of Taiwan corporate sales data called other electronics — which includes Foxconn’s Hon Hai Precision Industry Co. — is still down 3.4% for the year. Furthermore, that grouping has recorded only two positive months out of six — April and May. June data were as bad as March, when Covid-19 really sent the global economy into a tailspin. There are a number of caveats to the corporate sales data and the analysis that results from it, namely that they cover only Taiwan and are specifically related to hardware. Still, the outsize depth and breadth of Taiwanese companies in the global supply chain allows us to track trends. According to Taiwan Semiconductor Manufacturing Co., the largest contract chip manufacturer, demand for its products is being driven by 5G networks and smartphones, plus high-performance computing, such as artificial intelligence and graphics chips.Digging into the computer and peripherals category, we can see more clearly what’s going on.This subset is dominated by Quanta Computer Inc. and Compal Electronics Inc. — the world’s two largest laptop makers. Yet bigger contributions to growth come from lesser names like Gigabyte Technology Co. and Micro-Star International Co., which make motherboards — those green platters of plastic to which components are soldered.  High-end gaming laptops and corporate servers are major uses of the motherboards produced by these companies — which gel with the demand for graphics and AI chips being churned out by TSMC. These niches are enjoying a resurgence thanks to the stay-at-home trend driven by the pandemic.We can see that outside of these specific product categories, the bigger drivers of demand, such as smartphones, still look weak. Upticks in March and June indicate a post-lockdown resumption of supply, and a burst in orders as the world settles in for sustained impact from Covid-19.The broader rollout of new telecom networks, which happens every eight to 10 years, helps offset this global weakness but doesn’t remove it. That means that it’s a dangerous bet to believe in wholesale resumption of demand, because macro-economic headwinds are likely to catch up with this short-term shot in the arm that tech has experienced.The “other electronics” category — a catchall for companies that make everything from smartphones and home electronics to modules and internet devices — remains weak. Lack of growth here, declining 6.9% year-to-date, points to a broader trend of tech companies suffering from the downturn and missing out on pandemic-specific demand. This is the sub-sector you’d want to see improve before declaring a recovery.For sure, that June Jump looks exciting. But investors should brace for disappointment over the coming six months.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.For more articles like this, please visit us at now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Two factors the market is missing with Compal Electronics Inc

    Two factors the market is missing with Compal Electronics Inc

    Buying quality merchandise when it's on sale is a stock market strategy used by some of the greatest investors in the world - including Warren Buffett. After t...

  • Bloomberg

    Little-Known Data Show Signs of a Tech Bounce

    (Bloomberg Opinion) -- Buried in a set of little-known data are early signs that the hardware side of the technology sector may be rebounding from the pandemic-driven plunge.Investors generally need to wait until a few weeks after a quarter closes to get a sense of how well (or badly) business has been, or hope that a company will provide an update when the situation changes. Except in Taiwan. A decades-old regulation requires companies there to report sales every month. This information isn’t useful only to investors in locally traded stocks. What’s listed is a broad range of companies that make chips, components, half-assembled modules and final products used in almost every electronics device in the world. The numbers can also provide a snapshot of output in China, where most Taiwanese technology manufacturers have the bulk of production.As early as January, it became obvious that the coronavirus would be a nightmare for tech companies. We now know that Apple Inc. posted a 7.2% drop in March-quarter sales of iPhones and iPads, while its major supplier, Foxconn Technology Group, suffered its biggest dive in revenue for seven years.More interesting is to see what’s been going on since. A look at April sales data from Taiwan enabled me to crunch numbers. What we find is a bounce in revenue that gives some hope for the global sector.Taiwan Semiconductor Manufacturing Co. and Foxconn’s Hon Hai Precision Industry Co. are the most famous names in this data set, because they’re the biggest in their category and have a VIP client list that includes Apple, Qualcomm Inc., Huawei Technologies Co. and Sony Corp. Yet hundreds of others, such as Pegatron Corp., Quanta Computer Inc. and Largan Precision Co., collectively supply most of the industry.By aggregating the data month by month, comparing to a year earlier to smooth out seasonality, and looking at the sub-sectors within tech — defined by the Taiwan Stock Exchange — such as components suppliers, chipmakers, or computer assemblers, we can get an understanding of what was happening just a few weeks ago.Computers and peripherals, which include major PC and server makers Quanta and Compal Electronics Inc., showed the largest rebound, from an 11.9% drop in the January to March period to a 7.9% rise in April.   Electronics parts and components, such as circuit-board supplier Compeq Manufacturing Co., turned a mild decline into solid growth, from a 3.1% decline into a 9.1% increase.   Other electronics, including Hon Hai, which not only assembles iPhones but servers and networking equipment, went from an 11.8% fall to flat.   Chips, headlined by TSMC, remained incredibly strong.   Optoelectronics, which is largely displays and camera modules, shows a prolonged decline.One of the key takeaways is the relative strength in corporate-focused hardware, and possible continued weakness in gadgets. Foxconn pointed to this earlier in May, when it told investors that its consumer-devices division, which encompasses iPhones, would fall at least 15%, while enterprise products would climb 10%.There are two important caveats to the data.The first is that they track just Taipei-listed companies, and not some big names like Huawei and Samsung Electronics Co., which also manufacture their own hardware. However, it’s a like-for-like comparison — those companies aren’t included in last year’s data, either — and the broad reach of Taiwan’s tech sector means that even Huawei and Samsung are likely part of its supply chain.A more important note is that this is just for one month. Some of that April uptick is simply catch-up production for time lost at the height of the pandemic. Yet clients wouldn’t place orders if they didn’t feel that there’s end-demand somewhere. Autos and textiles are cutting production and shuttering factories in the knowledge that such a pickup in sales isn’t likely. With global turmoil making companies reticent to give predictions, investors wait in the dark for an update or a quarterly conference call. Even if we don’t know whether this is a true rebound, or merely a dead-cat bounce, at least there’s more timely data available to examine.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.For more articles like this, please visit us at now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

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