Taiwan: Portable Products Drive Demand, Prices to Drop 10%

Chip resistor firms in Taiwan are moving into high-end product development—the domain of Japanese companies. Mobile phones are the primary drivers for this move. Taiwan-based research firm Industrial Economics & Knowledge Center (IEK) estimates that of the 630 billion units of chip resistors that will be produced this year, about 180 billion will be used in mobile phones—by far the largest category. Desktop PC makers worldwide are expected to snap up about 70 billion units, with consumer electronics in the portable space (digital cameras, DVD players and LCD TVs) being the next big consumer. This is expected to result in a modest 4 percent growth rate in resistor volumes compared with 2004. Revenue growth is expected to be higher, thanks to the move up the value chain, where per unit yields are higher. However, this could change due to an uncertain foreign exchange situation (weakening dollar) and the overall slump on the electronics manufacturing space.



The slowdown is expected to push prices across the range of resistors lower by around 10 percent for the year. The reasons for the price drop are two-fold. First, makers in Taiwan have expanded production capabilities by as much as 30 percent over the past year. Most of that production expansion came online by Q1 2005. The second factor is the general a slowdown in the electronics market globally. Industry analysts speculate that the electronics industry is in the grips of a recession. All this has had an impact on resistor prices and supply in Taiwan. IEK expects supply to overtake demand by the end of the year as a recession in the electronics manufacturing space takes hold. Capacity utilization rate is expected to be around 82 percent, compared with 2004’s 85 percent.



Makers here are concerned that over capacity might result in a shakeout in the industry. There are over 200 manufacturers of chip resistors on the island. The top three being Yageo, TA-I and Ralec. Yageo’s output is over 21 billion units per month. IEK estimates Yageo alone accounts for 31 percent of the worldwide output of chip resistors. The company and the other top 10 makers combined control 80 percent of the total production from the island. Makers here fear the slowdown could result in a number of companies either closing down or being acquired by bigger companies.







The option of moving production to a cheaper location is no longer viable as most makers have already shifted the bulk of their manual production work to mainland China. The price drop, coupled with a steep increase in almost all raw material costs, are squeezing margins, making the line unprofitable for the smaller volume players.



Most companies here say the way to move forward is to continually focus on R&D with new product development as a way to stay ahead. Makers invest as much as 5 percent of their total revenue on R&D. The main export markets are the US, Europe, Japan and mainland China.