Second-quarter Growth in Taiwan's Machinery Sector to Remain Strong

Taiwan's machinery industry is steadily recovering from the global meltdown with overall production value totaling US$3.85 billion in the first quarter of 2010, for a 32.2% year-on-year growth, says W.C. Cheng, industry analyst at the officially-backed Industry & Technology Intelligence Services (ITIS) program, adding that the current recovery may not take the industry back to pre-meltdown levels, with significant recovery not likely to occur until 2011.

Leading Production Items

Machine tool is the largest subcategory with production value estimated at US$658.38 million in the first quarter of 2010, up 23.5% year-on-year, whose overall production value will likely total US$3.14 billion in 2010, surging 51.2% from a year earlier, with such double-digit growth in the first quarter of 2010 attributable mainly to robust demand in China, says the ITIS.

General-purpose machinery equipment is the second-largest subcategory whose overall production value reached US$1.21 billion in the first quarter of 2010, up 28% from a year earlier.

Electronics and semiconductor manufacturing equipment was the third-largest with production value reaching US$385.4 million, up 100.5% year-on-year. The fourth-largest sector is pumps, compressors, valves with US$269.25 million, up 23.1%.

Other machinery sub-groups posting remarkable year-on-year growth in production value in the first quarter relative to those of last year included manufacturing machines for textile, garment and leather, electronics and semiconductor, conveyors, woodworking machinery, machine tools, and mechanical transmission equipment.

Imports & Exports

ITIS statistics also show that Taiwan imported US$2.06 billion of machinery in the first quarter of 2010, up a mere 3.1% from a year earlier, with the tepid growth attributable to lukewarm recovery in domestic demand, and the largest imports including F&B, tobacco-making machinery; woodworking machinery; and pumps, compressors and valves.

The three largest import items in the first quarter, in descending order, were pumps, compressors and valves totaling US$355.9 million, up 45.7% from a year earlier; general-purpose machinery equipment at US$348.75 million, up 10.8%; and electronics and semiconductor manufacturing equipment totaling US$314.9 million, down 2.9%.

The ITIS notes Taiwan exported US$2.66 billion of machinery in the first quarter, up 18.8% from a year earlier, with the whole-year export value projected to reach US$14.57 billion, up 50.6% year-on-year, and the growth attributable to recovery in the domestic machinery industry.

The top-three exports in the first quarter included, in descending order, machine tools totaling US$472.67 million, up 2.8%; general-purpose machinery equipment at US$455.9 million, up 32.6%; and pumps, compressors and valves at US$340.06 million, up 13%.

Recent News

Good Friend International Launches TDRs on TWSE

Founded in 1993 in Xiaoshan, Hangzhou, Jiangsu province, Good Friend began mass producing CNC machine tools in 2000, as well as having become the world's largest machine-tool maker by volume. Good Friend International Holdings Inc., a subsidiary of the Taiwan-headquartered Fair Friend Group listed on the Hong Kong Stock Exchange, on March 18 began trading in Taiwan with the issuance of Taiwan depository receipts (TDRs) at the launch price of US$0.457 per share. The company issued 67.2 million units of TDRs with each representing a common share on the Hong Kong Stock Exchange.

Good Friend mainly supplies CNC (computerized numerically controlled) machine tools, forklifts and garage equipment, with CNC machine tools contributing to over 80% of corporate sales. This maker sells 97% of output to China's domestic market, who managed to sell 615 million renminbi worth of CNC machine tools in 2009.

Good Friend chairman Jimmy Chu notes capacity utilization in 2010 has reached 100%, with order visibility extended till the end of the third quarter, adding that the outlook is very promising based on industry recovery globally.

The rapid development in China of the automotive, infrastructural and rolling stock sectors is enabling Good Friend to foresee annual sales to surge 80% to 90% year-on-year to total 770 million renminbi in 2010.

Vice president of finance M.P. Yeh notes his company turns out 200 units of machine tools, and that the firm's lead won't endure after the global meltdown due to recovering rivals, with Good Friend to become the largest maker by 2018 that is driven by rapid development in China.

Plant Expansions

Inspired by global recovery in the machinery industry, many Taiwan-based makers, including Hiwin Technologies Corp. and Fair Friend Group, have production expansion plans.

Hiwin, Taiwan's largest manufacturer of linear-motion technologies and devices, will begin second-stage expansion of its factory in the Taichung Precision Machinery Industrial Park by the end of June, which will be completed by the end of this year to raise Hiwin's capacity by over 30%.

To meet the expansion demand, Hiwin has announced the hiring of 1,000 workers this year, a rare move in Taiwan's precision machinery industry over the past several years, with Goodway Machine Corp., Awea Mechantronic Co., Tongtai Machine & Tool Co., Victor Taichung Machinery Works Co. and Yeong Ching Machinery Industries Co., also planning to recruit new workers.

The recent recovery has pushed Hiwin's capacity utilization to nearly 100%, hence

the expansion. Company chairman Eric Y.T. Chuo says flooding orders over the past few months has pushed production capacity of linear guides to full, and 95% for ball screws.

Hiwin registered US$103.63 million in sales in 2009, down 36.54% year-on-year; but including that of subsidiaries, the entire Hiwin Group scored US$186.33 million in combined sales in 2009, down 20% year-on-year from US$232.91 million. Chuo notes the group's combined sales could reach US$310.55 million in 2010.

Kao Fong Machinery Co., Ltd., a major maker of large CNC machine tools in Taiwan, announced production expansion of its plant in Kunshan, Jiangsu Province, China sometime in 2011, which will help double production capacity.

Fair Friend Group says it will budget US$46.58 million to expand production capacity in Taiwan and China by the end of this year, with seven subsidiaries to be listed in China within the next five years.

Raising Prices

Rising prices of raw materials and key components as steel, cast iron and CNC devices have pushed Taiwan's leading manufacturers of machine tools to also raise product prices of starting April 1, with Victor Taichung Machienry Works Co., Tongtai Machine & Tool Co., and Kao Fong Machinery Co. having raised prices between 5% and 8%.

The global downturn sapped sales by record totals in Taiwan's machine-tool making sector last year, with many makers having raised prices to offset rising costs amid the bottoming out of the economy in the fourth quarter of last year.

Before the Lunar New Year in February, Goodway Machine Corp. and affiliate Awea Mechantronic Co. had already raised prices by 5%, and Edward Yang, chairman of both Goodway and Awea, says prices have to be raised at least 10% this time to offset higher production costs.

Other machine-tool manufacturers as Chin Fong Machine Industrial Co. and Dah Lih Machinery Co. have also raised prices beginning April 1, reflecting, according to an insider, continually rising prices recently of steel plates, pig iron, cast iron and CNC devices.

Mostly Bright Outlook

The machinery sector typically is slower to benefit from a recovery than the downstream electronics counterpart, despite having received significantly more orders in the first quarter. The ITIS says machine tools and electronic and semiconductor manufacturing equipment suppliers have been first to benefit from the current recovery, mainly driven by strong demand from the automotive sector in China and India.

With the gradual recovery to continue, Taiwan's machinery sector's second-quarter growth will equal that in the first quarter, with the ITIS predicting Taiwan's machinery industry to see overall production value reach US$4.21 billion in the second quarter, up 9.4% from the previous quarter.

Despite promising outlook amid the recovery, Taiwan's export-oriented machinery sector's production lines may be filled with orders, but somehow the global meltdown has also siphoned away workers, resulting in a labor shortage.

The ITIS believes Taiwan's machinery sector will return to pre-meltdown production levels this year, with the overall production value estimated at US$16.22 billion, for a year-on-year growth of 37.6%.

Annual Machinery Production Values in Taiwan Unit: NT$1 billion
Sector	2008	2009	2010 (forecast)	Annual Growth 2010/2009
Machine Tool	144.577	66.855	101.116	51.2%
Agricultural Machinery	3.468	3.28	3.168	-3.4%
Mining, Construction Equipment	1.03	0.422	0.369	-12.5%
Food, Beverage, Tobacco-making Machinery	6.355	4.3	4.539	5.6%
Textile, Garment, Leather-making Machinery	22.439	15.903	21.872	37.5%
Woodworking Machinery	12.425	6.832	9.985	31.7%
Chemical Machinery	20.644	15.766	18.205	46.2%
Plastics & Rubber Processing Machinery	34.786	23.267	31.033	33.4%
Electronics & Semiconductor Manufacturing Equipment	51.56	24.383	48.168	97.5%
Special-purpose Machinery	42.567	25.571	32.284	26.3%
Pumps, Compressors, Valves	42.077	27.35	35.932	31.4%
Mechanical Transmission Equipment	13.281	8.115	12.13	49.5%
Conveyors	35.532	20.495	25.204	23%
Office Automation Machinery	7.54	5.045	6.66	32.1%
Pollution Abatement Equipment	3.096	1.613	1.2	-25.6%
Powerful Hand Tools	12.406	7.168	9.103	27%
Other General-purpose Equipment	187.058	124.69	161.241	29.3%
Total	608.859	379.616	522.476	37.6%
Source: Industry & Technology Intelligence Services under the Industrial Economics & Knowledge Center, Industrial Technology Research Institute