Taipei: Export-oriented semiconductor and auto part manufacturers in Taiwan are facing potential setbacks as the Taiwan dollar continues to appreciate sharply against the U.S. dollar. This foreign exchange development is expected to impact their profit margins due to significant foreign exchange losses.
According to Focus Taiwan, ASE Technology Holding Co., a leading player in the semiconductor industry, noted that for every NT$1 increase in the Taiwan dollar against the U.S. dollar, its gross margin is reduced by approximately 1.5 percentage points. The U.S. dollar saw a notable decline of NT$1.114, or 3.71 percent, closing at NT$29.950 on Tuesday morning, following a 3.07 percent drop on Friday. This marked the steepest single-day decline since 2002.
Dealers attribute the rapid appreciation of the Taiwan dollar to expectations that the United States will pressure Taiwan into strengthening its currency. This move aims to enhance the competitive edge of U.S.-made goods. Such pressure is anticipated to surface during discussions between Taipei and Washington regarding a proposed "reciprocal" tariff of 32 percent threatened by the Trump administration on April 2.
ASE Technology's concerns about the exchange rate fluctuations were echoed by Taiwan Semiconductor Manufacturing Co. (TSMC) and United Microelectronics Corp. (UMC). TSMC indicated that a 1 percent rise in the Taiwan dollar could reduce its operating margin by 0.4 percentage points. Similarly, UMC projected a 0.4 percentage point drop in its gross margin. At a recent investor conference, TSMC forecasted an operating margin between 47 and 49 percent for the second quarter, assuming an exchange rate of NT$32.5 to one U.S. dollar.
A source within the local semiconductor industry highlighted the challenges faced by the sector in effectively hedging against foreign exchange risks due to the sudden appreciation of the Taiwan dollar. Taiwanese tech exporters may also experience pressure to adjust their pricing as their clients respond to the currency's rising value.
Semiconductor suppliers, particularly upstream companies like TSMC, might possess more bargaining power in pricing negotiations, the source added. However, auto part manufacturers, which typically operate on lower profit margins, could find the strengthening Taiwan dollar more detrimental to their profitability. Tong Yang Group, an aftermarket replacement auto part supplier, expressed concerns over the long-term impact of a strong Taiwan dollar on their bottom line.
An industry source anticipated that the rapid appreciation of the Taiwan dollar would affect the auto parts industry's profitability in the second quarter. Meanwhile, an investment consulting analyst noted that many Taiwanese exporters employ natural hedging strategies to mitigate forex impacts. These methods include aligning revenues and expenses or invoicing in the local currency, with the impact of a stronger Taiwan dollar varying by industry.