Taiwan Lost but not Forgotten

[rffrydr]

Relative valuation is also relative:

http://online.wsj.com/mdc/public/npage/2_3051.html?mod=mdc_h_dtabnk&symb=SOXX

[edit: I guess you have to plug in TSM]

Inventory story is huge: DRAM and flash have to SHOW Vista boost. Otherwise the Asian tech story will become the Asian commodity story of an earlier age.

Perhaps even a bearish indicator for our own market depending where you think the premium should be:

http://online.wsj.com/mdc/public/npage/2_3051.html?mod=mdc_h_dtabnk&symb=SOXX
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Today is the Tomorrow you worried about Yesterday!

[HenryTo]

The Philly Semiconductor Index closed at 272.17 on February 10, 1997, or ten years ago. Today, the SOX is at 463.19, for an annualized return of 5.5% without taking into account dividends.

In comparison, the 10-year annualized return of Taiwan is negative 1.24% based on the MSCI Taiwan.

Also looking at the Morningstar information services index (which has a 10-year annualized return of 5.35%) and forward P/E is at 20.7, relative to 14.7 on the iShares Taiwan Index.

Given the yield advantage and the relatively low Taiwanese dollar, Taiwan is definitely undervalued. If the semis don't turn up here, I don't see too much downside in Taiwan. If it does turn up, then Taiwan is probably a better play vs. buying semis on the NASDAQ.

[rffrydr]

That's quite a "hump" there, between then and now. Maybe two different worlds. In '97 they were saying there'd be chips in everywhere, in everything. Today, there are. Potato chips may not that different in the end.

I tried buying tech in '97, in Japan! Suffice it to say, money didn't follow logic. You'd think Taiwan would be the ultimate backdoor into China. The irony is compounded by the fact that so much of what China is, IS Taiwan. The Chinese STOCKmarket however, is the chinese investor; and the chinese investor is not going to be investing in Taiwan--somethiing to do with marketing....

For the US investor, how much is this 5% worth relative to the beta of the investment vs. the political and geographic risk thrown in at no extra cost? Revaluation will mostly press margins in the long run and rundown the flat panel behemoth long before its time.

I can buy 4GB CF for less than the price of 2GB two months ago. Gotta like the Vista story to buy Taiwan--but then it's about Apple now, and who's buying an Ipod with the Iphone coming five months. DVD's squabble over blueRay while the market is moving to Download on demand, and web-posted content. Then there's oil....
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

ADI shed light on semis and most expected sluggish results, while CRM operates in the customer relations software business. ADI reported solid numbers, but mixed guidance. The stock was trading up after hours as it reported strengthening orders sparking hope of an end in the inventory correction--a wall of which still looms.
_________________
Today is the Tomorrow you worried about Yesterday!

[rffrydr]

SOX breaking out? When SOX does well market does well:

http://stockcharts.com/charts/performance/perf.html?$SPX,SOX
_________________
Today is the Tomorrow you worried about Yesterday!

[HenryTo]

Asia all red tonight (China down nearly 5%) with the exception of Taiwan.

[HenryTo]

Barron's article on Taiwan Semiconductor Manufacturing - which makes up 15% of the Taiwanese iShares:
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A Stock With Little Fanfare, Big Returns
By CATHERINE SHU

ANYBODY WHO OWNS a cellphone, computer, or electronic organizer has almost certainly used a Taiwan Semiconductor Manufacturing chip. But like its tiny products, the semiconductor foundry's stock has delivered stellar performance with little fanfare.

Shares of Taiwan Semi, which manufactures semiconductors on contract for other tech companies, have climbed 19% over the past 12 months, outperforming the Dow Jones Semiconductor Index, which fell 2%, and the Standard & Poor's 500, which gained 12%.

Investors fretted over slower gains, however, after Taiwan Semi reported a slump in its fourth-quarter net profit in January, citing a buildup in inventories that has pressured revenue growth in the semiconductor industry.

But as the world's largest semiconductor foundry, Taiwan Semi is positioned to reap all the benefits of an upswing in the semiconductor cycle. The company also pays out a fat dividend; the yield is currently 3.3%.

"Taiwan Semiconductor is clearly the leader in its segment, it is the best company at what it does, and it continues to widen the distance between it and its primary competitors," says John Jostrand, a portfolio manager at William Blair & Co. William Blair Investment Management owns 14.4 million shares of the stock.

Jostrand expects shares to climb 20% to 22% over the next 12 to 15 months.

The stock also looks cheap even though semiconductor foundries are set to enjoy faster growth than the rest of the chip industry. The company's forward price-to-earnings ratio of 17.8x represents a 32% discount to its foundry peers, a 37% discount to the semiconductor manufacturing industry, and a 23% discount compared to its five-year average forward P/E of 22.8, according to Thomson Financial/Baseline.

While difficult year-over-year comps have pressured semiconductor stocks, portfolio manager Rahul Sharma of the Cullen International High Dividend Fund says Taiwan Semiconductor may be undervalued because Taipei is considered an emerging market. Taiwan Semiconductor is "a good example of an emerging market company that is as competitive, or even more competitive, than its developed market peers," says Sharma.

Bill McClean, the president of market research firm IC Insights, says that Taiwan Semi enjoys a 49% share of the $19.7 billion foundry industry, soundly beating peers like United Microelectronics, its nearest competitor.

Taiwan Semi has facilities in Taiwan, Shanghai, Singapore and the state of Washington. The company manufactures chips for more than 200 tech companies, including Qualcomm, Texas Instruments and Intel.

Last month, Taiwan Semi said that it expects the current semiconductor cycle to bottom by the end of March and stage a strong recovery in the second quarter, but that year-over-year revenue growth will continue to be muted for the company and the semiconductor industry as a whole.

"It's been challenging for semiconductor companies to predict and forecast the magnitude of seasonal demand" over the past several years, leading to inventory pressure, says Mehdi Hosseini, an analyst with Friedman, Billings, Ramsey.

Taiwan Semi is perfectly situated, however, to enjoy the strength of the foundry sector as more tech companies outsource semiconductor production.

McClean of IC Insights forecasts an 11% growth rate for the semiconductor foundry market in 2007, compared to a 7% growth rate for the entire semiconductor industry. In 2008, IC Insights foresees even stronger growth -- 33% for foundries versus 20% growth for the semiconductor industry.

The services of dedicated foundries will continue to be in demand as the cost of building semiconductor fabrication facilities, or fabs, increase. "Even companies that have their own foundries, like Texas Instruments or Freescale Semiconductor, are outsourcing more products because they don't want to put all their money into fabrication," says McClean.

As the market leader, analyst Roxy Wong of Bear, Stearns says that Taiwan Semi is also at the front of the pack as the semiconductor industry migrates to 65 nanometer (nm) chips, which are smaller, faster and consume less power than the previous generation of 90nm chips.

"Since Taiwan Semiconductor has the biggest scale and the best execution in terms of performance, I do think that the company will outperform the sector," says Wong.

Factors fueling the adoption of the new 65nm chips in the second half of the year include demand for new third-generation cellphone handsets, LCD television sets, videogame consoles and updated PCs. Sales of these items will also drive continuing revenue from the previous generation of 90nm chips.

Elizabeth Sun, Taiwan Semi's director of investor relations, says that advanced technology, including the 65nm chips, will account for more than 50% of total wafer revenues in 2007, which will help support average selling prices.

Taiwan Semi's ample cash flow has also allowed it to boost its cash dividend each year. The company's board has recommended a dividend of $3 per share this year, up from the $2.50 per share paid out in 2005, and a stock dividend of five shares for every 1,000 held. A shareholder vote on the proposal is set for May 7.

Portfolio manager Sharma of the Cullen International High Dividend Fund, which began buying into the stock five months ago, lauds the company's combination of a low price-to-earnings ratio and high dividend yield. "In general, it's very hard to find technology companies with those metrics with the notable exception of tech companies in Taiwan," says Sharma.

To be sure, consumer demand for electronics is hard to predict, and the chip industry's move to 65nm chips can pressure margins. If catalysts like new 3G handsets do indeed gain momentum, then Taiwan Semi will be required to ramp up its manufacturing capacity above the forecast, especially in the second half of the year.

A testy relationship between China and Taipei can also limit Taiwan Semiconductor's growth when it comes to expanding its business within the larger country.

Taiwan Semi's competitive advantages, however, will allow it to crest any economic pressures successfully.

Taiwan Semi's Sun notes that there is significant overlap between the facilities needed to build 65nm and 90nm chips, which means that the technology migration will not place undue pressure on the company's capital expenditure budget.

Sun also says that the company is not overtly worried about the conflict between China and Taiwan, which has not stopped Taiwan Semiconductor from opening a facility in Shanghai.

"The rhetoric between the two governments and politicians is one thing, but most Taiwanese businesses, including Taiwan Semiconductor, are not affected by this so-called political tension," says Sun.

While growth in the first half of the year may be somewhat subdued as the semiconductor industry rights itself, a bet on Taiwan Semiconductor is a bet on a stock that, like the company's cutting-edge chips, packs a powerful punch.

[rffrydr]

And blissfully insulated from Chinese investors--one bull story investors can live without.

By superstition, can we expect the chinese buying to be contained now until the next big holiday in May?
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Too close for comfort?

Grass is not always greener on the other side The Chinese New Year is traditionally a time for the Taiwanese to consider a new challenge, but experts say they should think twice before jumping ship. Kathrin Hille.
The Financial Times (Feb 15, 2007): p20.


Byline: KATHRIN HILLE

As Lunar New Year approaches, many employees in Taiwan are preparing to return to a different company after the holiday in mid-February. Chinese New Year is not only the season to get together with your family but also to look for a new, hopefully better, job.

But in this job-hopping season, human resources experts say employees should think twice before they move, because most will find it challenging not only to find a better-paid position but even one with a salary matching their current one.

1111 Job Bank, one of Taiwan's largest placement agencies, estimates that 150,000 jobs will come available after Lunar New Year. "But the job seekers will far outnumber this figure," says Ryan Wu, a 1111 Job Bank vice-president. "And it will be very difficult for most to find something better than they've already got."

The phenomenon is only the latest manifestation of a now firmly established trend: Salaries in Taiwan are barely rising.

Last year, the average salary increased by 3.57 per cent, barely outpacing inflation. "After China increased the pace of opening up its economy in 2000, Taiwan has experienced a magnetic effect," says Mr Wu. "Companies have relocated manufacturing to the mainland at a record speed so job growth is more difficult to achieve."

In 2001, when the island experienced its first recession since the second world war, its unemployment rate jumped to more than 6 per cent. Although it has since come down to under 4 per cent, many people have ended up in the informal sector, with lower incomes and less job security.

Taiwan's economy has lacked domestic growth drivers in recent years, with constant political deadlock putting a damper on consumer confidence and private investment. The island is also enjoying fewer benefits in terms of employment even when exports are humming, because such a large proportion of the value chain has been moved to mainland China.

"In late summer 2005, our export orders registered record highs, but that did not translate into decent salary increases in related industries last year," says Mr Wu. "So you can see that increasingly, orders are being taken in here, but jobs are created in China."

Traditional industries registered a 7.5 per cent jump in average salaries last year but that was due to one-off effects from the completion of two large-scale public works projects. Salaries in the technology industry, which dominates Taiwan's economy, were up 3.5 per cent. The lowest increase was registered in education, media and broadcasting, reflecting the closure of several daily newspapers in the island's over-competitive media sector.

My Job, another job placement agency, says the outlook for this year is no better. "From our experience, salaries are flat so far, with the only increases to be seen in the tech sector," says one placement official at the firm.

Salaries for new graduates entering the job market are another benchmark that does not look encouraging. "Basically the pay for the new entrants has not moved upwards for ten years," says Max Fang of 104 Job Bank, the market leader among Taiwan's job placement companies.

However, a closer look reveals that while many participants in the job market are worse off today than a few years ago, others enjoy increasingly attractive compensation.

This is not necessarily reflected in straightforward pay rises but in the increasing adoption of performance-based pay. According to 104's latest survey, only 18 per cent of employers in Taiwan plan to increase salaries this year. But 42 per cent intend to use flexible pay systems.

One group that is seeing strong pay increases is engineers in certain parts of the technology industry. "Research and development personnel are still continuing to see pay increases," says Mr Fang. Beyond that, he also identifies certain companies from traditional industries that are modernising and globalising as candidates for handing out higher compensation. Giant, the bicycle company, and O-Ta, a golfclub maker, are examples.

The only segment of corporate Taiwan where pay trends are at odds with the rest is Taiwanese companies in the mainland. With an estimated cumulative investment of more than Dollars 100bn, Taiwan is among the largest foreign investors in China.

"Over there, the idea of flexible pay has not taken root yet," says Mr Fang. Only 28 per cent of Taiwanese employers in China are planning to use merit-based pay this year, while 33 per cent - almost double the percentage in Taiwan - intend to raise wages.

"This reflects the different economics in a market with strong economic growth and fierce competition for human resources - everything that China is but Taiwan is not," says Mr Fang.

Back home in Taiwan, the job market will need some new catalysts to start to see salary growth again. Currently, those job seekers with a preference for general administrative jobs are worst off. More than 25 per cent of job seekers seek a position in this segment, but less than one-sixth of the jobs are on offer there.

The only silver lining comes from Taiwan's new High Speed Rail service, which has cut the travel time between Taipei, the capital and commercial centre, and Kaohsiung, the second-largest city in the south of the island, to 90 minutes from almost six hours. Human resources consultants expect it to trigger big changes in the job market.

Mr Wu sees the potential for a large number of smaller service sector companies to move to southern Taiwan, where office space and personnel costs are significantly cheaper.

He says this would appeal to small- and medium-sized entreprises (SMEs) whose owners are southerners and do not need customer contact in an office. Almost half the companies that have offices in Taipei city have roots in southern Taiwan. In the long term, this would help raise pay levels in southern Taiwan.
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Taiwan Semi continued to hurt on inventory overhang--but nothing hungover on price:

http://investing.reuters.co.uk/news/articleinvesting.aspx?type=media&storyID=nTP168808
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Today is the Tomorrow you worried about Yesterday!

[diesel]

Taiwan to run out of electricity? Industry is worried..

http://www.bloomberg.com/apps/news?pid=20601109&sid=a4dHg9CL6Fnc&refer=home

[rffrydr]

That's the answer: outsource to China. (see board under Yangtze Dam).

After California it is surprising to see infrastructure story sticking up here.
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Today is the Tomorrow you worried about Yesterday!

[rffrydr]

Looks like they outsourced to China via other exchanges:

[HenryTo]

IBD on Taiwan:

http://biz.yahoo.com/ibd/070618/etf.html?.v=1

[rffrydr]

Citi likes your thinking Master H.:

http://www.marketwatch.com/news/story/citigroup-upgrades-taiwan-shares-overweight/story.aspx?guid=%7BC014D1CF%2DB7FA%2D4342%2D98FE%2DA7A9C165518C%7D


Much of this rally depends, I continue to think, on the "success" of the iphone. Which I think will succeed...just that there are so many possibilities for failure.
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