Taiwan/China Electronics - April Performance

As I write this week’s column on Sunday, May 11, some, but not all of the Taiwan-listed electronics companies have released their April revenues. Since many of these companies actually manufacture in mainland China, their consolidated monthly results provide a “pulse” of Taiwan/China business activity.

Based upon preliminary results, Taiwan-listed OEM sales dropped about 5% in April 2008 compared to March 2008 but were up 22% versus April 2007. Looking at ( Chart 1 ), note the November “pre-holiday season” peaks (circled). Also note the red arrows pointing to April sales. The monthly sales pattern is quite regular – a peak in November, sharp seasonal declines until February, a March recovery, a decline in April and May, and then growth in June through November.

	Chart 1

Although not all sectors have yet reported complete April results, Taiwan-listed LCD display makers ( Chart 2 ) exhibited strong growth in 2007, an expected post-holiday seasonal decline beginning in December, a March recovery and then a 6% drop from March to April 2008. In contrast solar/photovoltaic panel producers (no “consumer electronics seasonal” behavior) have been growing strongly since early 2005 ( Chart 3 ).

	Chart 2

	Chart 3

Global Economic Indices

( Chart 4 ) provides industrial production (IP) growth for many of the major economies worldwide. It should be noted that these IP growth rates are often highly volatile on a month-to-month basis, but this chart provides a good overview of relative growth in Western Europe, Central Europe, Japan, Southeast Asia and North America.

	Chart 4

( Chart 5, Chart 6, and Chart 7 ) provide global electronic “food chain” sector growth (actual & forecast) for 2007, 2008 and 2009. Most industry pundits still expect that 2008 will be the trough year in this current business cycle. SEMI CAPEX is the most volatile sector.

	Chart 5

	Chart 6

	Chart 7

World Economic Discussion & Outlook ( Chart 8 & Chart 9 )

	Chart 8

	Chart 9

Thanks to my colleague Ed Henderson here is the “Global Economy” section of his 18-page May 2008 “Henderson Electronic Forecast.” See www.hendersonventures.com to learn how to get Ed’s entire report each month.

CREDIT CRUNCH EASES

The bursting of the real estate bubbles in the United States, the United Kingdom and Spain all contributed to the subprime mortgage disaster and the ongoing credit crisis. But unprecedented cooperation among the major central banks has helped to inject massive amounts of liquidity into the global financial system, which had threatened to seize up. And while commercial banks are still treading gingerly, financing has become more readily available. Still, there is a long way to go before housing markets and credit markets return to normal. Moreover, fear of inflation will limit the amount of monetary stimulus central banks will now be willing to apply to a global economic recovery. Consequently, global gross domestic product (GDP) growth rates will be modest during the next two years. The world economy is expected to expand by only 2.8% this year, after a 3.8% gain in 2007 and 4.0% in 2006. Moreover, the 2009 recovery will be muted. Only a 3.3% gain is predicted for next year. However, economic growth will regain its luster in 2010 when a 3.7% increase is expected, as shown below.

During the past decade, globalization has been rightly extolled as a major force for economic growth and price moderation. In the latter category, huge productivity gains in low-cost emerging economies such as China have been a major force for low prices. But now, the resultant economic boom has brought large economic benefits to many developing nations. Consequently, their currencies and prices have risen along with their economic gains. That has been particularly true for countries that are exporting energy products, food and industrial commodities.

The inflation pressure is considerable for those countries that peg their currencies to the U.S. dollar because their imports effectively become more expensive. Moreover, the rising price of commodities has seeped into the general economy as evidenced by spikes in consumer and industrial prices.

For example, Eurozone consumer inflation was 3.6% in March, while China registered an 8.3% increase. Heightened fears of runaway inflation are tightening the resolve of the European Central Bank (ECB) and the Bank of China to resist interest-rate cuts, even as economic growth slows. And the U.S. Federal Reserve Board (Fed) has effectively signaled that its latest interest-rate cut of one-quarter percentage point on April 30th is likely to be the last move for awhile. In effect, the banking doctors will watch the vital signs of the world’s economies while they wait for their fiscal and monetary prescriptions to take effect.

tatistics for the first quarter show that the Chinese economy grew by 10.6% versus a revised 11.9% for all of 2007. A good deal of the deceleration can be traced to a contracting trade surplus, partially driven by a major appreciation of the Chinese yuan ( Chart 10 ). In April, it only took 7.00 yuan to purchase a dollar, compared to 7.73 yuan a year earlier. The 10.4% currency appreciation is part of a wide-ranging attack on inflation. The more muscular Chinese currency will continue to dampen exports and, therefore, the overheated economic activity. It will simultaneously lower the price of imports and, therefore, “imported inflation”. As a result, Chinese GDP is forecast to decelerate sharply this year. A 9.6% gain is expected to replace the previously-mentioned 11.9% run-up for 2007. Moreover, economic growth is predicted to decelerate further in 2009 and 2010, a year when GDP is forecast to increase by a mere 8.2%.

	Chart 10