The possibility last month of war breaking out in Iraq contributed to a sharp dip in Taiwan's export orders, to their lowest growth rate in almost a year.
Orders for the island's products dropped 14.2% on a sequential basis in February, to $11.17 billion, according to Taiwan's Ministry of Economic Affairs. Electronic systems, subsystems, and components are among Taiwan's primary exports.
The latest figures represented a 9.9% gain from a year earlier, but that is the first time since March 2002 that the year-over-year increase was not in double digits, the ministry said. Export orders for the previous month are usually an indicator of actual shipments in the current month, said the ministry's statistics chief, Chang Yaw Tzong.
Chang attributed the slowed growth in February to anticipation of war and its subduing effect on foreign orders, particularly from the United States. "Orders from the U.S. didn't increase," Chang said.
But that is only one of several factors contributing to the slowdown, according to Ben Lee, an analyst at Nomura Securities Co. Ltd., Taipei. "The situation in Iraq, a weak U.S. economy, and the Chinese New Year holidays all contrib-uted to the slower growth of export orders in February, in which there were almost 10 fewer working days," Lee said.
Demand from the United States, the island's largest overseas market, was flat in February at $3.2 billion. European orders climbed 8.3%, to $1.8 billion, and Japanese orders increased 2.4%, to $1.1 billion. Orders from Hong Kong, which serves as a way station for the shipment of products from Taiwan to mainland China, surged 28.9%,to $2.4 billion, the ministry said.
Chang said the slowdown would not significantly affect business in Taiwan if the war in Iraq ends soon. "If the war lasts less than three months, Taiwan companies won't be affected very much. Otherwise, demand from their global clients would shrink to a great extent."
If the war lasts longer than expected, Taiwan companies' profits are likely to be squeezed by factors such as rising oil prices and insurance fees, indus-try sources said.
The island's electronics industry has already felt some effects of the war with a disruption of shipping schedules and an increase in shipping costs. "Maritime shipments for heavy items such as desktops and CRT monitors have been delayed," Nomura's Lee said.
China Airlines and EVA Airways, Taiwan's two largest air carriers, announ-ced cargo rate increases last week of 10% to the U.S. and 15% to Europe, citing increased costs and demand.
But even if shipping costs go up, some of Taiwan's electronics companies said there won't be an immediate impact on their price structure.
"There has been no substantial impact so far," said Jesse Chou, a spokesman for Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC), the world's largest foundry services provider. "Even if there were, freight accounts for only a small portion of our costs."
Chou added that in some cases, shipping costs are not even a factor because TSMC calculates its quotes in a variety of ways for different customers. Some prices are based only on what it costs TSMC to get the products out of the factory or beyond local ports, rather than delivered to their destination.
While industry leviathans such as TSMC may easily absorb the additional freight costs resulting from the war, some of Taiwan's smaller fish may find the expenses more difficult to swallow.
An executive with Quanta Computer Inc., which ships laptops to major OEMs such as Hewlett-Packard Co., admitted to a slight increase in his company's prices, but wouldn't say how much.
Eric Chen, special assistant to the president for Taiwan chipset design house ALi Corp., said the impact of increased shipping rates on his company has so far been minimal.
"Most of our customers are in China and Taiwan, so we're largely unaffected by the rate increases," which apply to Europe and the United States, he said.
Both the increased freight costs and the shipping delays are mitigated by the fact that Taiwan's companies saw the war coming and prepared for it, said Nomura's Lee. "Most OEMs have built up some inventory by asking their Taiwan suppliers to deliver products before the war even began."