Supply chains shifts and splits

Hello everyone! This is Lauly from Taipei.

It’s been a while since I last wrote the #techAsia newsletter. I was training and working at the Financial Times in London for a few months before returning to Taiwan two weeks ago. The first thing that welcomed me in Taipei was the beginning of tech suppliers’ year-end banquet season before the Lunar New Year holidays.

These parties are the most anticipated event of the year for hundreds of thousands of employees in Taiwan, with entertainment provided by famous singers or bands, and lucky drawings held for a range of prizes. This year, companies gave away millions of dollars worth of such prizes — including Tesla cars, in one case.

But the bosses of these companies sounded a cautionary note in their opening speeches to employees. The pandemic-era boom in demand, they said, has faded and economic uncertainty is weighing on the immediate outlook.

Whether demand picks up in the second half, as many hope it will, remains to be seen.

A move towards Mexico

The push to diversify tech supply chains is showing signs of a new trend. Instead of merely moving away from China, capacity is also shifting from East to West.

Taiwanese tech suppliers, which play crucial roles in the supply chain, are increasing their production capacity in Mexico to meet the growing demand from clients for electric vehicles and servers to be made in North America, Nikkei Asia’s Lauly Li writes.

Major iPhone assembler Foxconn, along with its compatriots like Pegatron, Compal Electronics and Quanta Computer, are all pouring money and resources into Mexico, with many saying the country is among their top priorities for this year.

Satisfying clients, however, is just one reason Mexico is looking more appealing to these companies. Changes in US policy — namely the Inflation Reduction Act — are making it more economically feasible for them to move some operations to North America.

Testing the water

The activist fund Elliott Management has become one of the largest shareholders of Japan’s Dai Nippon Printing, marking the latest investor campaign in an equity market rich with targets, Leo Lewis and Kana Inagaki write for the Financial Times.

Shares in the 146-year-old Japanese conglomerate, which has a huge but unheralded global share in components of electric vehicle batteries and smartphone screens, surged 15 per cent on Wednesday following the FT report.

The stakebuilding adds to only a handful of investments that Elliott has previously made in Japan — with Masayoshi Son’s SoftBank and Toshiba the most prominent. People close to the fund characterised it as an experiment in extracting trapped value that could pave the way for significantly more activity.

Elliott has quietly increased its investment in DNP over the past few months, according to people familiar with the situation, and now holds a stake of a little less than 5 per cent worth about $300mn, making it the third-largest external shareholder.

People close to DNP said Elliott’s initial engagement with the company, which has a market capitalisation of $6.3bn and currently trades where it did 20 years ago, has focused on a series of demands: a more aggressive share buyback scheme, the sale of its sprawling real estate holdings and an accelerated disposal of its extensive portfolio of shares in other Japanese companies.

DNP confirmed Elliott’s investment but declined to comment on details of its engagement with individual shareholders.

When the chips are down . . .

“I feel like hitting the brakes and hitting the gas at the same time,” Intel CEO Pat Gelsinger recently told the World Economic Forum in Davos, Switzerland.

The chief of America’s biggest semiconductor company was describing his resolution to continue expanding while also acknowledging the industry “needs to make some near-term reductions” in response to weakened chip demand.

Intel is in the midst of a historic expansion push as it races to catch up with Asian rivals like Taiwan Semiconductor Manufacturing. The company — once the global leader in processors for personal computers — is building factories in the US to serve outside customers as a contract chipmaker. It is also expanding in Europe and south-east Asia.

Gelsinger is confident these investments will pay off once the current turmoil passes.

“Everybody still believes the semiconductor industry doubles this decade,” the CEO said.

One world, two systems

It’s time for the tech industry to accept that it needs two supply chains: one for the Chinese market, and one for the rest of the world, chip industry veteran Lu Keh-Shew told Nikkei Asia’s Cheng Ting-Fang in a recent interview.

“The whole world has recognised that a secure semiconductor supply is a national security issue, so the previous, commercial, way of thinking about the chip industry and the pursuit of low costs doesn’t always work,” said Lu, the CEO of US-listed chip company Diodes.

Semiconductor companies must accept that commercial considerations are increasingly taking a back seat to political concerns when it comes to decisions such as where to invest, according to Lu. The tensions between the US and China that are fuelling this change are not going away, he added.

Lu is preparing his own company for the future he predicts. “We have to think about alternative production bases for our own chip packaging, assembly, and testing, too,” he said.

Suggested reads

1. Bangladesh smartphone keyboard touches off political controversy (Nikkei Asia)

2. ASML chief says chip demand expected to bounce back by mid-2023 (FT)

3. Amazon launches air cargo service in crucial India market (Nikkei Asia)

4. India’s electric vehicle market glides into gear from standing start (FT)

5. Nidec shares slide after surprise profit warning (Nikkei Asia)

6. Shein in talks on fundraising that would slash valuation from $100bn to $64bn (FT)

7. China to launch state-owned ride-hailing app to take on Didi (FT)

8. India’s top court rejects Google plea to block Android ruling (Nikkei Asia)

9. Japan’s SkyDrive eyes 2026 US launch of flying cars (Nikkei Asia)

10. The good old days will not be back for China’s internet companies (Nikkei Asia)

#techAsia is co-ordinated by Nikkei Asia’s Katherine Creel in Tokyo, with assistance from the FT tech desk in London.

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