How Apple drives Taiwan’s economy
Improving outlook for technology related products is driving demand for tech components manufactured in Taiwan (EWT). Global companies like Apple (AAPL), Samsung (005930.KS), Sony (SNE) and Nokia (NOK) source their manufacturing equipment from Taiwanese semiconductor companies like Taiwan Semiconductor (TSM) and Hon Hai (2317.TW). Further, the United States (SPY) represents nearly 29% of Taiwan’s export market.
Both TSMC and Hon Hai, are trading at record highs. Year to date, these stocks have surged 12.4% and 21.1% respectively. In fact, the Taiex index’s rally is primarily driven by gains in tech stocks. The eight highest grossing stocks on the Taiex Index in 2017 were suppliers to Apple. As per an estimate by Goldman Sachs, 42% of the revenues of members of Taiex’s constituents are related to Apple.
With Apple’s shares touching all time highs and it becoming the most valuable company in the world, Taiwan’s semiconductor stocks have been marching ahead. Most analysts have been upgrading these stocks on expectations of upbeat earnings and rising demand for their products backed by the upcoming launch of the iPhone 8.
As per Bloomberg estimates, companies like Hon Hai Precision supplies goods worth $23.9 billion to Apple. Among other Apple suppliers, Taiwan Semiconductor Manufacturing, the largest microchip maker in the world has gained 12% while Pegatron (4938.TW) an iPhone assembler has surged 17%
Meanwhile, companies like Catcher Technology (2474.TW), Casetek Holdings (5264.TW), Quanta Computer (2382.TW), FLexium Interconnect (6269.TW) and Advanced Semiconductor (ASX) generate nearly 1/3rd of their revenues from Apple. YTD these stocks have returned 43.3%, 8.9%, 5.1%, and 15% respectively.
Read on to the next part to understand why Credit Suisse sees trouble for Taiwan’s tech stocks, despite the recent outperformance.