The nation’s technology sector is heading toward a cyclical recovery in the second half of this year and into next year as export orders for electronic components rebound, DBS Bank Ltd said in a report on Tuesday.
Data released last week by the Ministry of Economic Affairs showed that export orders for electronic components, primarily semiconductors, last month shrank 0.4 percent year-on-year to US$17.7 billion.
While it marked the ninth consecutive month of annual declines, the drop at the start of the third quarter was notably less severe than the average 20.2 percent fall observed in the second quarter, indicating that external demand for Taiwan-made electronic components has begun to improve, DBS said.
Photo: Ritchie B. Tongo, EPA-EFE
The decline in demand from China, among the nation’s major export markets for electronic components, moderated as of last month and demand from ASEAN markets increased, while a deeper contraction continued for Japan and South Korea, it said.
Other factors that were conducive to the tech sector’s nascent recovery included a reduction of excess inventories, a stabilization in chip prices, a gradual pickup in demand for commercial PCs and smartphones, and increased investments in products used in artificial intelligence (AI) applications, it added.
Global PC shipments are forecast to grow 3.7 percent year-on-year to 261.4 million units next year, after an estimated decline of 13.7 percent to 252 million units this year, the International Data Corp (IDC) said in its Worldwide Quarterly PC Tracker report on Monday.
Meanwhile, worldwide smartphone shipments declined 6.8 percent annually to 268 million units in the second quarter of the year, the eighth consecutive quarter of contraction, IDC said in its Worldwide Quarterly Mobile Phone Tracker report on Aug. 11. While the market is still struggling with soft demand, inflation, macroeconomic uncertainties and excess inventory, the pace of decline last quarter was slowing compared to previous quarters, IDC said.
Moreover, semiconductors designed to execute AI workloads would present a revenue opportunity for the semiconductor sector this year, as the adoption of ChatGPT is spurring investments in generative AI, DBS said.
“Taiwan is poised to be an immediate major beneficiary of AI investments,” Singapore-based DBS economist Ma Tieying (馬鐵英) said in the report, referring to Taiwanese foundries led by Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) as dominating about 90 percent of the global production of advanced logic chips under 10 nanometers.
With its leading-edge technology capacity and mature-node technologies, TSMC has already secured a substantial share of AI chip orders from Nvidia Corp and Advanced Micro Devices Inc, Ma said.
Meanwhile, Microsoft Corp, Alphabet Inc’s Google, Amazon.com Inc and Facebook owner Meta Platforms Inc are reportedly pursuing custom AI chip development, which would also leverage TSMC’s advanced nodes for fabrication, she said.
However, potential risks persist — including a global macroeconomic slowdown, escalating US-China tensions, continued monetary tightening in the West and an economic slump in China — which would exert pressure on global demand for end devices and weigh on Taiwan’s electronic component exports, the report said.
Moreover, if Washington is to implement more restrictive measures to limit China’s access to chips for AI, the move could generate additional negative effects on global semiconductor trade and potentially disrupt the expected tech recovery ahead, it added.
DBS maintains its GDP growth projections for Taiwan at 0.5 percent this year and 3.5 percent next year, the report said.
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