Taiwan/China Overview

June 2008 sales for Taiwan-listed companies (many with Mainland China manufacturing) have just been released. In general this year’s “seasonal upturn” in Southeast Asia is being hurt by weak economic conditions, less favorable costs/exchange rates, and rising inventories.

Total Taiwan-listed electronic equipment sales ( Chart 1 ) showed only an anemic increase from May to June following an extremely large (27%) decline from November to February. 3-Month (2Q’08 vs. 2Q’07) growth slipped to +14% (still impressive) from its +37% peak in October 2007
( Chart 2 ), but the current month-to-month upturn is very modest. Southeast Asia is still growing but at a much more moderate pace.

	Chart 1

	Chart 2

By end market network equipment was relatively flat ( Chart 3 ), industrial computers continued their climb ( Chart 4 ), scanners declined ( Chart 5 ), and display panels plunged ( Chart 6 ).

	Chart 3

	Chart 4

	Chart 5

	Chart 6

Package & test was up ( Chart 7 ), memory appears to be recovering ( Chart 8 ), and passive components dipped ( Chart 9 ). However, solar/photovoltaic panels continued their strong and steady increase ( Chart 10 ).

	Chart 7

	Chart 8

	Chart 9

	Chart 10

The Taiwan-listed ODM companies dipped this June ( Chart 11 ) – a month when they typically signal the beginning of the “busy season” upturn. Rigid printed circuit boards showed only a modest May-to-June recovery ( Chart 12 ), but rigid (CCL) laminate performed much worse than PCBs
( Chart 13 ). Flex circuits plunged ( Chart 14 ), but flip-chip producers reported improving sales from their February trough ( Chart 15 ).

	Chart 11

	Chart 12

	Chart 13

	Chart 14

	Chart 15

Metal Prices – Precious Metals Climbing Again

While copper ( Chart 16 ) and tin ( Chart 17 ) prices have stabilized, gold ( Chart 18 ) and silver ( Chart 19 ) prices are climbing again.

	Chart 16

	Chart 17

	Chart 18

	Chart 19

Chip Foundries - Excess Customer Inventories Causes Slower Growth ( Charts 20-23 )

Taiwan Semiconductor Manufacturing Company (TSMC) and United Microelectronics (UMC), the world's largest chip foundries, reported slowing sales growth in June as their customers tried to reduce increasing inventories.

Reuters reported that "Inventories are rising for TSMC's customers, which is making their ordering patterns more conservative," said one analyst at a major foreign bank. "The slowing in June sales wasn't unexpected, and we've already had a 'hold' rating on them for a long time."

Worldwide Semiconductor Capital Equipment Spending to Decline 22% in 2008 ( Chart 24 )

	Chart 24

Continued economic uncertainty, combined with weakness in memory markets, will result in worldwide capital equipment spending totalling $49.2 billion in 2008. This is a 22.4% decrease from 2007, according to the latest projections by Gartner, Inc. The numbers are down from Gartner’s April forecast of a 19.8% decline in spending for 2008.

Gartner analysts said significant oversupply conditions in the dynamic random access memory (DRAM) and NAND flash memory segments has led to precipitous price declines and profitability pressures for most of the memory producers. Worldwide memory spending is expected to decline 32.1% with DRAM down 40.5% and NAND flash down 19%.

“The next six to 12 months will be another period of uncertainty and risks for the semiconductor manufacturing and equipment industries,” said Klaus Rinnen, managing vice president for Gartner's semiconductor manufacturing group. “The bursting of the DRAM spending bubble should come as a surprise to no one; the fact that it coincides with downward economic pressures and the uncertain impact on semiconductor demand adds significant risk to an already grim forecast for capital equipment.”