Hello everyone! This is Lauly writing from Taipei. I’ve been reconnecting with sources in the supply chain and attending earnings calls over the past several weeks. I’m sorry to say, the mood among suppliers regarding consumer electronics — the pillar of the tech industry — is really bleak.
Yesterday I went to the earnings conference of a power management supplier whose customers include Meta, AWS and Google as well as all the major PC brands. The CEO told me that demand dropped off so suddenly in the last quarter of 2022 that no one had expected it. “Almost all of our PC clients asked us to stop shipping products to them in October and by December, our data centre clients also suddenly halted shipments from us,” the CEO said. “And now, we don’t even know if it is at the bottom yet.”
The manager of a thermal module maker told me that his company, its suppliers and others operating nearby in the same industrial zone in Dongguan, China, have all been running at less than 50 per cent of their production utilisation rates since the final quarter of 2022.
The situation in the tech industry is completely different from what it was two or three years ago, when companies were racing to meet unprecedented demand spurred by the boom in working and learning remotely. Now suppliers are hoping that the electric vehicle industry and a recovery in consumer demand in the second half of the year will help them get back on track.
Apple has tapped Luxshare to help develop its augmented reality devices, with the Chinese contract electronics manufacturer set to be the primary producer of the first generation of the gadget, Nikkei Asia’s Cheng Ting-Fang and Lauly Li write.
Luxshare took over AR development from Pegatron, the Taiwanese iPhone assembler that had been working on the project with Apple for four years.
Foxconn, Apple’s largest manufacturing partner, has been tasked with the parallel development of the second generation of the the iPhone maker’s AR devices. Apple has also asked Taiwan Semiconductor Manufacturing Co. and Sony to develop the crucial micro OLED display technologies for the devices.
Luxshare’s participation in the AR project marks a milestone for Chinese tech suppliers. In the past, Apple relied on Taiwanese suppliers like Foxconn to develop the first generations of new product lines, while Chinese suppliers were allotted orders later on. Luxshare’s growing importance to Apple also comes amid heightened tech tensions between Washington and Beijing and scrutiny of Apple’s own reliance on its Chinese supply chain.
China’s newest crop of technology companies is more likely to list at home rather than in the US, write the Financial Times’ Ryan McMorrow and Sun Yu.
International funding for Chinese start-ups dried up in 2022, pushing many fledgling technology companies to raise capital and list at home instead of on Wall Street.
Dollar investments in the country’s new companies fell by nearly three-quarters last year, declining to 19 per cent of the total capital put into start-ups, from 39 per cent in 2021, according to new data from research group ITJuzi.
Chinese investors and founders say geopolitical tensions with the US, as well as Beijing’s tech crackdown and harsh zero-Covid policy, spooked foreign investors. At the same time, growing support from the Chinese government and Washington’s sanctions also made raising renminbi more appealing.
The decision to raise dollars or renminbi generally puts Chinese entrepreneurs on two very different paths. One leads to successful companies going public in New York or in Hong Kong, while the other usually results in a listing in Shanghai, Shenzhen or Beijing.
The drop in dollar funding for start-ups comes as large international investors pull back from pouring money into China-focused private equity and venture funds. China funds raised only $14bn last year, down from $95bn in 2021, according to Preqin data.
Garbage in, goods out
South-east Asia has reaped the economic benefits of global supply chains shifting away from China, but the region is also facing a crisis in the form of plastic waste. Local start-ups are tackling the problem in creative ways, including by turning this waste into consumer goods, writes Nikkei Asia’s Dylan Loh.
“Compared to the rest of the world, South and south-east Asia use more single-use plastic due to its affordability and convenience,” said Prak Kodali, CEO and co-founder of pFibre, which is taking another approach. The Singapore-based company uses biodegradable plant-based ingredients to make flexible packaging film that mimics the properties of plastic.
Eco-friendly businesses of this sort are seeking to promote a “circular economy” that reduces or eliminates human-generated waste. But raising money is a challenge at a time when global macroeconomic uncertainties, rising interest rates and inflationary pressures are keeping investors on the sidelines. Deal activity involving sustainable companies fell 24 per cent in 2022 to $159.3bn, a two-year low, according to a report in January by financial data provider Refinitiv.
New drive needed
From chip and component makers to final product assemblers, tech suppliers are banking on the emerging electric vehicle industry to offset the severe slowdown in consumer electronics demand, Nikkei Asia’s Lauly Li writes.
Foxconn, the world’s biggest contract electronics manufacturer, is optimistic about the EV industry, while Taiwan Semiconductor Manufacturing, the top contract chipmaker, says demand for auto-related chips remains high and supply constraints will continue this year.
“I spent four months on a business trip to our factories in Dongguan, Suzhou, China, recently,” said a procurement manager at a maker of thermal modules for PCs, smartphones and servers that also supplies EV maker BYD. “The only thing that our company, our suppliers and our compatriots talk about and feel hopeful about this year is EVs.”
However, there is a risk in expecting too much from the automotive sector, analysts warn, as the global economy battles inflation while cost of living crises in major countries eat into consumer buying power.
Sumitomo to bypass China in EV rare-earth supply chains (Nikkei Asia)
#techAsia is co-ordinated by Nikkei Asia’s Katherine Creel in Tokyo, with assistance from the FT tech desk in London.