Taiwan's Tech Titans Face Forex Headwinds: A Stronger Dollar's Impact on Exports

Semiconductors and Auto Parts Under Pressure as the Taiwan Dollar Soars

Taipei, Taiwan – Export-focused industries in Taiwan, particularly semiconductor and auto parts manufacturers, are bracing for potential margin erosion due to the recent surge in the Taiwan dollar's value against the U.S. dollar. The currency's rapid appreciation is creating challenges for these crucial sectors of the Taiwanese economy.

Major players in the semiconductor industry, such as ASE Technology Holding Co., a global leader in IC packaging and testing services, have acknowledged the sensitivity of their margins. They report that a NT$1 rise in the Taiwan dollar against the U.S. dollar can reduce their gross margin by approximately 1.5 percentage points.

The U.S. dollar saw significant declines, reflecting market anticipation of potential pressure from the United States. This pressure might emerge during trade discussions between Taipei and Washington, specifically concerning potential tariffs. The situation highlights the complex interplay of currency values and international trade relations.

The concerns expressed by ASE Technology are echoed by other prominent chipmakers like Taiwan Semiconductor Manufacturing Co. (TSMC) and United Microelectronics Corp. (UMC). TSMC indicated that a 1 percent rise in the Taiwan dollar could lead to a 0.4 percentage point decrease in its operating margin. Similarly, UMC anticipates a potential 0.4 percentage point drop in its gross margin under the same conditions.

TSMC had previously projected an operating margin between 47% and 49% for the second quarter, based on an exchange rate of NT$32.5 per U.S. dollar. The current shift in currency value presents a challenge to these projections.

Sources within Taiwan's semiconductor industry emphasize the need for effective strategies to mitigate foreign exchange risks. Exporters will face testing bargaining power as international clients might request price adjustments.

While upstream semiconductor suppliers like TSMC may possess more leverage in pricing negotiations, the impact is particularly acute for auto part manufacturers, who operate on thinner profit margins.

The Tong Yang Group, a key supplier of aftermarket auto parts, acknowledged its ability to weather short-term volatility. However, prolonged strength in the Taiwan dollar could significantly impact their profitability.

An investment consulting analyst points out that many Taiwanese exporters employ "natural hedging" techniques to lessen the impact of currency fluctuations, such as matching revenues and expenses or invoicing in the local currency. The specific impact of the stronger Taiwan dollar, however, will depend on the particular industry.