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Taiwan Machine Tools | November 18, 2017

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Manufacturing growth forecast raised

Manufacturing growth forecast raised

Driven by improving demand and steady global economic recovery, the nation’s manufacturing output in terms of revenue is expected to grow 3.87 percent to NT$17.54 trillion (US$576 billion) this year, the Industrial Technology Research Institute’s (ITRI, 工研院) Industrial Economics and Knowledge Center (IEK, 產業經濟與趨勢研究中心) said yesterday.

The forecast was 0.67 percentage points higher than IEK’s previous estimate in April of 3.2 percent growth.

The output forecast for the metal and electrical sectors was raised by 1.98 percentage points to 2.5 percent from the previous forecast, the highest among the main industrial sectors, due to the rising cost of iron ore, and improving market conditions amid falling inventory levels and increasing sales, the IEK said.

By contrast, the center gave more muted outlooks for the information and electronics, petrochemical and household consumer goods sectors, with each receiving an upward revision of less than 1 percentage point.

“The gains are partly due to a low base set last year and we hold a cautiously optimistic view on the pace of growth of Taiwan’s manufacturing output for this year,” ITRI analyst Jim Chung (鍾俊元) told a news conference in Taipei.

The ITRI said that the US Federal Reserve’s plans to wind down its balance sheet could add to foreign-exchange volatility, which might affect the nation’s export-oriented manufacturing sector amid pressure from the New Taiwan dollar’s 5.91 percent appreciation against the US dollar since the beginning of the year.

Chung also said that rising systemic financial risk in China posed concerns as Beijing continues to trim excess corporate leverage.

Meanwhile, the IEK said that in value-added terms, Taiwan’s machine tool industry is the worst-performing segment behind all other segments of the manufacturing sector.

The machine tool industry is a major segment of the nation’s traditional industries and its output is expected to rise by 4.8 percent to 5.8 percent this year from NT$121.2 billion a year earlier, it said.

However, the machine tool industry’s value-added ratio was last gauged at 21.3 percent, below the manufacturing sector’s overall average of 28.5 percent, while most of the expected gains were propelled by rising wages in the industry, ITRI machinery and systems research division director Alfred Wang (王興毅) said.

The outcome is due to the relatively smaller scale of local machine tool makers, who have difficulties diverting profits toward research and development, Wang said, adding that development staff at many companies must also double as sales and service support staff.

In addition, middle and lower-tier machine tools sold by local firms might face pressure from cheaper alternatives from China, Wang said.

Wang said companies should specialize in their product offerings and deepen expertise in their niches, while developing transition plans for business models from selling standalone machines to machines that could be integrated into an automated production line.

Services and software solutions sales should become a larger part of revenue streams, as they lead to deeper adoption by clients and cannot easily be replicated by rivals Wang said, adding that services made up 45 percent of Japan-based DMG Mori Seiki Co’s sales last year.

Similarly, the ITRI also urged the government to focus its industrial transformation plans on patent coverage in emerging industries, such as 5G broadband and aerospace, to reduce the burden of patent licensing fees on Taiwanese suppliers.

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