AI and industrial sector gap widens: ratings firm

• By Crystal Hsu / Staff reporter

• • Add TT as Preferred Source

  • 

  • 

  • 

Taiwan’s artificial intelligence (AI) boom is widening the divide across its industrial economy, with technology companies benefiting from surging global investment while steel and petrochemical producers struggle with Chinese overcapacity, geopolitical risks and growing trade barriers, Taiwan Ratings Corp (中華信評) said on Wednesday.

AI has become the biggest source of revenue for Taiwan’s technology hardware companies, with continued capital spending by US cloud-service providers driving growth across the supply chain, the ratings agency said.

The gains are spreading beyond semiconductor and electronics manufacturers to power supplies, substrates and passive components, creating a broader technology investment cycle, it said.

Taiwan Ratings Corp’s logo is pictured outside the company’s office in Taipei on July 9, 2024.

Photo: Wu Hsin-tien, Taipei Times

“AI has become the most important revenue source for Taiwan’s technology hardware companies,” Taiwan Ratings chief analyst Raymond Hsu (許智清) told a news conference in Taipei.

Taiwan Semiconductor Manufacturing Co (台積電), Hon Hai Precision Industry Co (鴻海), Delta Electronics Inc (台達電) and Unimicron Technology Corp (欣興) have received ratings outlook upgrades on expectations of AI-related revenue growth, he said.

The boom is also benefiting Yageo Corp (國巨), the world’s third-largest multilayer ceramic capacitor supplier, Taiwan Ratings deputy chief analyst Anne Kuo (郭彥煒) said.

Yageo’s business has accelerated over the past two or three quarters as demand rises for high-end passive components used in AI applications, while supply constraints have also pushed up prices for lower-end products, Kuo said.

Strong AI demand has helped manufacturers absorb higher costs from building factories in the US and Southeast Asia, Kuo said.

At the same time, tight supply in the AI ecosystem has given companies pricing power to pass much of the increase on to customers, she added.

The technology sector could remain resilient even if AI investment slows, Taiwan Ratings said.

Under a stress scenario in which cloud AI revenue falls 50 percent, earnings margins decline 30 percent and cash-conversion cycles lengthen 10 percent, technology companies would still maintain relatively solid earnings, Hsu said.

The outlook is weaker for traditional industries, the agency said.

Taiwan’s steel and petrochemical producers are facing earnings below previous cyclical troughs as Chinese overcapacity weighs on prices and margins, it said.

Rising trade barriers aimed at containing Chinese exports are adding pressure to Taiwan’s export-dependent producers, while geopolitical tensions could raise energy costs and squeeze margins, Taiwan Ratings analyst Irene Lai (賴冠?) said.

Companies with greater exposure to specialty chemicals, vertical integration and diversified businesses are better positioned to weather the downturn, Lai said.

Steelmakers face similar challenges, she said. Although demand is growing in Southeast Asia, new capacity is coming online, limiting the prospect of meaningful improvement in global supply and demand, she added.