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Talk of the Day -- Electronics industry in low margin era
Central News Agency
2013-06-29 09:30 PM
The days when electronics serves as the locomotive that drives Taiwan's industrial growth are over. A survey by the government's statistical agency found that the information electronics sector's gross margin has dropped by more than 5 percentage points in recent years, falling from about 8 percent in 2006 to less than 3 percent two years ago. The Directorate General of Budget, Accounting and Statistics (DGBAS) unveiled earlier this month the results of the survey on business records of various economic sectors at the end of 2011. It marked the first time that official figures have proved low margin in the country's once glamorous information electronics industry. The following are excerpts from a special report in the Saturday edition of the United Evening News: According to the DGBAS survey, the average profit rate of various economic sectors stood at 6.35 percent at the end of 2011, down 0.88 percentage points from that recorded in 2006. The industry category posted a decline of 3.04 percentage points in gross margin during the five-year period. Worse still, the manufacturing sector in the industry category registered an even larger decrease of 3.25 percentage points to a mere 4.77 percent during the same period. The main reason behind the manufacturing sector's shrinking gross margin was a steep fall in the information electronics industry's profit ratio. The information electronics sector's gross margin slid to an average of 2.73 percent in 2011 from 7.89 percent in 2006, marking a 5.16 percentage points decline, the largest among all industrial sectors. "The survey found that our information electronics industry is struggling as its gross margin has plunged significantly in recent years," said a DGBAS official. Lo Wei, a senior executive at Fubon Financial Holding's economic research center, said low gross margin is part of the effects of globalization. "China's entry into the World Trade Organization and India's opening of its market in the early 2000s have led to an influx of cheap labor and commodities into the global market, which fueled cut-throat competition and drops in our manufacturing sector's gross margin," Lo said. Taiwanese companies' inability to capture emerging market trends and acquire core technologies have also hindered their pursuit of higher profit ratio, Lo noted. Liang Kuo-yun, president of the Yuanta-Polaris Research Institute, said the over-3-percent fall in average industrial and manufacturing profit ratios confirmed the advent of a low margin era. In the past, he said, Taiwan's information electronics industry was strong because companies in its upstream, midstream and downstream sectors all developed well. "Nowadays, only upstream wafer foundry business remains in good shape, while midstream and downstream companies are struggling, especially the PC sector," Liang said. To seek a breakthrough, local entrepreneurs should be more sensitive to global product changing trends, in addition to stepping up investment in research and development, Liang said. "We should focus more on innovation and be able to discern emerging market trends or catch up with trend-leading companies to remain viable in fiercely competitive global market," Liang said. (June 29, 2013). (By Sofia Wu)
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