Taiwan tech orders holding up well, but take a look at Japan autos instead

by SR on July 23, 2012

Taiwan technology export orders (million USD)

Taiwan tech exports orders supported by US

Taiwan’s Ministry of Economic Affairs released export order data for June 2012 on Friday 20 July. Total export orders came to 36.4 billion US dollars, down 2.6% year-on-year and down 0.3% month-on-month. For the period January to June 2012, orders have fallen 0.9% compared to the same period in 2011. Demand from the Americas (mostly the US) has risen 4.2% YoY year-to-date, partially but not completely offsetting the declines in orders from Japan, China and Europe. Tech export orders (electronics and information technology products) have done better, falling only 0.3% YoY year-to-date, with China and the Americas being noticeably firm.

All-in-all, a pretty good showing, but it’s still negative growth. While there are no doubt opportunities in the tech space globally, I recommend you have a look at Toyota and its group suppliers such as Denso and Aisin Seiki. In the chart below you can see cumulative global production for 2012 at Toyota up to May 2012. Not only is production ahead of 2011 levels (which is only to be expected given the disruption caused by the Northern Japan earthquake in March 2011) but it is also ahead of the same period in 2008. Globally, not many sectors can claim to be enjoying such a resurgence in demand in 2012.

Toyota cumulative global auto production (million units)

Why you should care

Taiwan is the global centre for certain electronic products. Taiwanese original design manufacturers (ODMs) supply roughly 90% of the world’s notebook PCs. They also manufacture tablet PCs such as the Apple iPad, the recently launched Nexus 7 from Google and the Kindle Fire from Amazon. In addition to that Taiwanese companies supply LCD panels and a huge array of other computer peripherals and the electronic components that go into them. In that sense, Taiwan is the electronic workshop of the world.

Just as importantly, order data is released quickly, typically within 20 working days of the end of the month. The data itself is taken from a survey that companies with an export value above a certain threshold level are required to return to MOEA, so this is a sample rather than an exhaustive treatment. Cancellations and undelivered orders are collected as well as the actual order value.

In essence, what we should have here is a broad-based and fairly timely indicator of movements in the technology sector in Asia and to an extent in the US and Europe as well. It’s not perfect, but it’s worth keeping an eye on for those of you who follow tech.

What to look at

As you might expect, Taiwan’s export orders are concentrated in technology, where cluster effects and long experience have given the island’s companies a competitive advantage. The chart below shows that of the $436 billion US dollars in export orders received in calendar 2011, Information and Communication products accounted for 25% and Electronic products for 23.4%. (A note on definitions: IT products includes computers and related items, whereas Electronic products contains mostly electronic parts and components, including LCD and ICs, plus smaller items of equipment such as calculators.) The next largest industry is Precision instruments, which also includes clocks, watches and musical instrments, at 8.4% of total orders – a big step down from the technology industries just mentioned.

Taiwan export orders by industry as % total

By region and country, the results are similar – high concentration in a few areas. What slightly surprised me when I starting looking at this data a while back was the size of Hong Kong and China, the largest source of export orders at 25.9%, followed by the USA and Europe at 23.1% and 18.2% respectively. Japan was in 4th place at 9.8%. As might be expected, other areas of Asia contributed a significant amount, including what MOEA calls the ASEAN-5 (Indonesia, the Philippines, Malaysia, Thailand and Vietnam) at 5.2%.

Taiwan export orders by region as % total

In many industries Taiwan doesn’t generate any significant exports. The chart below puts regions and industries together and shows the “hotspots” in red. Only four areas contribute more than 5% of total orders: IT products in Europe (7.4%) and in the US (7.3%), followed by Electronics products in Hong Kong and China (7%) and also in the US (6%). There are three other substantial contributors: Precision instruments in Hong Kong and China (4.6%), Electronics from Europe (3.9%) and IT products to Japan (3.5%).

The size of Precision equpiment orders to Hong Kong and China initially had me raising an eyebrow, but it’s logical enough: cameras, optical drives and other equipment sold for use in mainland China would be a significant driver. It appears that China is a driver for a number of sectors as in that row of the chart (China) there are decent figurs for almost every industry. (Click on the chart for a larger image.)

Taiwan orders by region and industry as % total (2011)

Zooming in on technology

When looking at the export orders, we want to remove the non-core portions of the data, which in our case is everything not related to technology. To do that we add the Information and Communication series to the Electronic products time series. These two items together made up 48% of total export orders in 2011.

Looked at in this way, the picture becomes a little clearer. The chart below shows monthly orders for technology products (as defined above) in millions of US dollars. That’s the blue line; the red line marks the highest previous recorded value. What the image is showing you is that Taiwanese technology orders have regularly hit new highs over the past decade. The biggest and most protracted downturn came after the burst of the dotcom bubble, which is understandable. From 2004 onward orders just keep rising. I’m guessing that this has been driven by the agility of Taiwanese companies and their ability to hop from hot product to hot product as the technology sector evolves. Moreover, orders in June were 96.3% of the previous peak, recorded in late 2011. Due in part to the turmoil in Europe 2012 is turning out to be a difficult year, but so far Taiwan technology is turning in a creditable performance.

Taiwan export orders for technology products (million USD)

On a monthly basis, 2012 (the red line) has been fluctuating around the blue line showing 2011 orders (this is the same chart as at the top of the page).

xx

Where does this leave us on a cumulative basis? The graphic below shows the way export orders built each year for the past five years, from 2008 onwards. Orders in 2012 are shown by the red line, orders for 2011 are shown by the blue line. The two lines are almost on top of each other, showing that in essence 2012 is level-pegging with 2011, although strictly speaking from January to June 2012 orders are down 0.4% compared to the same period in the previous year. (Performance of the electronics and IT portions of the ‘technology’ series have been very similar year-to-date.) This strikes me as a pretty good performance but, as I said at the beginning of this post, some parts of the auto industry are on fire and may be a better place to park your money.

xx

Previous post:

Next post: