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Signs of a tech bounce - if you know where to look
BURIED in a set of little-known data are early signs that the hardware side of the technology sector may be rebounding from the pandemic-driven plunge.
Investors generally need to wait until a few weeks after a quarter closes to get a sense of how well (or how badly) business has done, or hope that the company provides an update when the situation changes - except in Taiwan.
A decades-old regulation requires companies there to report sales every month. This information is useful not only to investors in locally traded stocks. What is listed is a broad range of companies that make chips, components, half-assembled modules and final products used in almost every electronics device in the world.
The numbers can also provide a snapshot of output in China, where most Taiwanese technology manufacturers have the bulk of production.
As early as January, it became obvious that the novel coronavirus would be a nightmare for tech companies. We now know that Apple posted a 7.2 per cent drop in March-quarter sales of iPhones and iPads, while its major supplier, Foxconn Technology Group, suffered its biggest dive in revenue for seven years.
More interesting is to see what has been going on since. A look at April sales data from Taiwan enabled me to crunch numbers. What we find is a bounce in revenue that gives some hope for the global sector.
Taiwan Semiconductor Manufacturing Company (TSMC) and Foxconn's Hon Hai Precision Industry are the most famous names in this data set, because they are the biggest in their category and have a VIP client list that includes Apple, Qualcomm, Huawei Technologies and Sony. Yet hundreds of others, such as Pegatron, Quanta Computer and Largan Precision, collectively supply most of the industry.
By aggregating the data month by month, comparing to the year before to smooth out seasonality, and looking at the sub-sectors within tech - defined by the Taiwan Stock Exchange - such as components suppliers, chipmakers, or computer assemblers, we can get an understanding of what was happening just a few weeks ago.
Computers and peripherals, which include major PC and server makers Quanta and Compal Electronics, showed the largest rebound, from an 11.9 per cent drop in the January-to-March period to a 7.9 per cent rise in April. Electronics parts and components, such as circuit-board supplier Compeq Manufacturing, turned a mild decline into solid growth - from a 3.1 per cent decline into a 9.1 per cent increase.
Other electronics, including Hon Hai, which not only assembles iPhones but also servers and networking equipment, went from an 11.8 per cent fall to flat. Chips, headlined by TSMC, remained incredibly strong. Optoelectronics, which largely comprises displays and camera modules, show a prolonged decline.
One of the key takeaways is the relative strength in corporate-focused hardware, and possible continued weakness in gadgets. Foxconn pointed to this earlier this month, when it told investors that its consumer-devices division, which encompasses iPhones, would fall at least 15 per cent, while enterprise products would climb 10 per cent.
There are two important caveats to the data.
The first is that they track just Taipei-listed companies, and not some big names like Huawei and Samsung Electronics, which also manufacture their own hardware. However, it is a like-for-like comparison - those companies are not included in last year's data, either - and the broad reach of Taiwan's tech sector means that even Huawei and Samsung are likely part of its supply chain.
A more important note is that this is just for one month. Some of that April uptick is simply catch-up production for time lost at the height of the pandemic. Yet clients would not place orders if they did not feel that there is end-demand somewhere.
Autos and textiles are cutting production and shuttering factories in the knowledge that such a pickup in sales is not likely. With global turmoil making companies reticent to give predictions, investors wait in the dark for an update or a quarterly conference call. Even if we do not know whether this is a true rebound, or merely a dead-cat bounce, at least there is more timely data available to examine. BLOOMBERG