Taiwan Braces for More Earnings Gloom as IPhone, Trade War Bite

Yu-Huay Sun, Bloomberg News

A customer holds an Apple Inc. iPhone XS Max box during a sales launch at a store in Chicago, Illinois, U.S., on Friday, Sept. 21, 2018. The iPhone XS is up to $200 more expensive than last years already pricey iPhone X and represents one of the smallest advances in the product lines history. But that means little to the Apple Inc. faithful or those seeking to upgrade their older iPhone. Photographer: Daniel Acker/Bloomberg , Bloomberg

(Bloomberg) -- Disappointing earnings may not be over for Taiwan companies, dragged by waning demand for Apple Inc.’s flagship iPhone and deteriorating relations between the island’s two biggest trade partners.

Net income for companies on the Taiex index is expected to drop 9.2 percent on-year this quarter after undershooting estimates in the three months through September, the first miss since the second quarter of 2017, according to data compiled by Bloomberg.

In a market where semiconductor firms account for more than a quarter of the benchmark’s weighting -- Taiwan Semiconductor Manufacturing Co. alone accounts for 21 percent -- the performance of tech giants like Apple can sway earnings. Suppliers including Hon Hai Precision Industry Co. saw disappointing profits after Apple reported stagnant iPhone sales and a worse-than-expected revenue forecast.

READ: Apple’s Outlook Dims as Suppliers Worldwide Sound the Alarm

Sino-American tensions have continued to simmer. U.S. Commerce Secretary Wilbur Ross said Thursday that President Donald Trump and Chinese President Xi Jinping are likely at best to agree to a "framework” for further talks to resolve trade tensions at an upcoming meeting.

With trade frictions threatening to increase costs for manufacturers and consumers, and with economic growth slowing, earnings for Taiwan companies could slide in the coming quarters, said Richard Lin, vice president at Reliance Securities Investment Consultant Co. “We’ll see the impact from the China-U.S. trade war gradually.”

Signs of a slowing economy have emerged of late, with the island’s exports rising at a slower-than-expected pace in October. Several board members of the central bank saw the need to consider interest-rate adjustments so that Taiwan has sufficient flexibility in monetary policy in face of a future global economic slowdown, according to its meeting minutes released earlier this month.

READ: Taiwan Growth Slows as Trade Tensions Prompt Consumer Caution

Companies that missed estimates include