Taiwan tech firms enjoying a slice of Apple's pie

The iPhone 6 and the iPhone 6 Plus are shown during an Apple event at the Flint Center in Cupertino, California, on September 9, 2014. -- PHOTO: REUTERS
The iPhone 6 and the iPhone 6 Plus are shown during an Apple event at the Flint Center in Cupertino, California, on September 9, 2014. -- PHOTO: REUTERS

Exports boosted by record sales of parts ahead of iPhone 6 launch

While Apple fans cannot wait to lay their hands on the latest iPhone 6 models, Taiwan's electronic component manufacturers are already rubbing theirs in glee.

Record sales of technological innards from integrated circuits to phone camera lenses, ahead of this week's iPhone 6 launch in the United States, helped push Taiwan's August exports to a three-year high of US$28.1 billion (S$35.5 billion), up 9.6 per cent from a year ago. Of this, overseas sales of electronic goods hit a record US$9.23 billion, up 20.6 per cent from last year.

A report by the Bank of America Merrill Lynch (BAML) said that frenzied sales of the iPhone 6 are expected to boost Taiwan's export growth by around 2 per cent a month from August to October and 1 per cent a month from November to January next year.

Apple partnered, for the first time, with Taiwan Semiconductor for chip manufacturing for the iPhone 6. Production kicked off late in the second quarter of the year.

The Taiwan government has already raised its 2014 growth forecast from 2.98 per cent to 3.41 per cent. Brokerages were even more optimistic, with Morgan Stanley predicting 3.7 per cent, up from 3.4 per cent.

The expected Apple-mania is "important for Taiwan", whose manufacturers provide about US$25 worth of inputs in each iPhone 6, noted the BAML report. All this will add up to a pretty penny, given analysts' expectations that 37 million and 63 million iPhones will be shipped in the third and fourth quarters of this year, respectively.

One of the report's authors, Ms Marcella Chow, told The Straits Times the surprise in Tuesday's announcement was that mainland China would not be among the first markets to get the new phone. But this simply means that the tail effect might be longer.

Another trend that helped put Taiwan's economy on the right track is the increase in mainland tourists after the lifting of caps on numbers and the increase in cross-strait flights, said senior economist Tony Phoo of Standard Chartered Bank in Taiwan. In 2008, Taiwan received 400,000 mainland visitors. The number is likely to exceed three million this year, he estimates.

Job sentiment has improved in tandem. A poll this week showed that over 40 per cent of employers are contemplating hiring new staff in the fourth quarter. But the reliance on tech demand means Taiwan's economy is tied to the fortunes of specific companies and could be hit when demand ebbs.

Other challenges continue to loom. One is that Taiwan's manufacturers remain known for their outsourcing capabilities rather than coming up with their own successful brands. While Taiwan maintains its edge in the first, it is vulnerable to the onslaught from rivals like mainland China.

Another threat is that political wrangling and Taiwanese people's worries about growing mainland influence in their economy have stymied the ratification of a cross-strait services trade pact while talks for a goods trade agreement have been delayed. With local elections coming up in November, Taiwan's politicians are unlikely to get moving on it soon.

This is even as the island's main rival South Korea - 70 per cent of exports from Taiwan and South Korea overlap - looks ready to ink a free trade agreement with China.

With lower tariffs and lower costs, manufacturers including those from Taiwan could decide to relocate to South Korea, said Ms Chow.

xueying@sph.com.sg