Making forecasts is always complicated and never a sure thing; and, to get a forecast close to reality, it’s necessary to constantly tweak factors and adjust assumptions. US President Trump has precipitated quite a bit of tweaking and adjusting. As a result, we expect to see the Trump trade-war with China drive up costs and therefore the price-elasticity curve of the PC market will flatten and depress demand.
Washington imposed 25% tariffs on $34bn of Chinese imports—enacting a plan laid out by president Trump earlier this year. The levies mainly affect Chinese technology such as aerospace, IT, and medical kit. Trump has threatened that the United States may target over $500 billion worth of Chinese goods, or roughly the total amount of U.S. imports from China last year.
 |
China's commerce ministry, in a statement shortly after the U.S. deadline passed at 0401 GMT on Friday, said that it was forced to retaliate, meaning imported U.S. goods including semiconductors, and semiconductor manufacturing equipment (as well as cars, soybeans, and aircraft also faced 25 percent tariffs.
“We can probably say that the trade war has officially started,” said Chen Feixiang, professor of applied economics at Shanghai Jiaotong University's Antai Colege of Economics and Management.
“If this ends at $34 billion, it will have a marginal effect on both economies, but if it escalates to $500 billion as Trump has said, then it's going to have a big impact for both countries.”
“Our baseline forecast assumes only a modest further escalation in the trade 'war' this summer,” Bank of America Merrill Lynch said in a Friday note.
“However, we can't rule out a full-blown, recession-inducing 'trade war',” it said.
China announced additional tariffs on 106 U.S. products Wednesday, The effective start date for the new charges will be revealed at a later time, though China's Ministry of Commerce said the tariffs are designed to target up to $50 billion of U.S. products annually.
 |
| The U.S. products that China is targeting (CNBC) |
The trade war will impact PCs, AIBs, PC gaming hardware, and workstations. We are therefore re-evaluating our forecasts for Q3 onward. It’s not likely there will be an immediate impact since we are already into the Q3. However, Taiwan chipmakers have quietly revised downward their revenue growth projections for the third quarter of 2018, as their order visibility for the quarter remains unclear amid the escalating China-US trade tensions that may undermine the shipment performance of their terminal customers in the quarter, according to industry sources.
Previously, vendors in the Taiwan supply chain estimated their third-quarter revenues would post double-digit sequential increases, but they now have lowered growth projections for the quarter, as customers have become more conservative due to uncertainties associated with trade spats between the two economic powers.
Traditionally PC sales increase in the third quarter; combined with the difficult rollout of new notebook and PC models, as reported by Digitimes and elsewhere, and slow sales performance of smartphones and other mobile devices on top of the China-US trade disputes has made it difficult for brand vendors and ODMs to predict their actual shipment volumes for the quarter, the sources said. Furthermore, these impacts are not likely to ease going forward as China and the US play tit-for-tat, and Taiwan gets caught in the middle.
Industry sources said that Taiwan Semiconductor Manufacturing Company (TSMC) has reportedly seen a slower-than-expected pickup for its 12-inch foundry capacity utilization in the third quarter, as Apple may not release AP orders for new iPhones until September. This may drive TSMC to revise downward its revenue growth goal for the third quarter.
Adding to the pressure has been a shortage in passive components such as multi-layer ceramic capacitors (MLCCs), partially due to the crypto-mining run up. As their shortage has increased the price of components raising the COG which will be passed on to the consumer further squeezing the price-elasticity.
Just prior to the trade war announcements, semiconductor sales once again set a new all-time high in May, growing by more than 20 percent for the 14th straight month, according to the Semiconductor Industry Association (SIA) trade group.
The three-month average of chip sales for May reached $38.7 billion, up 3 percent from April and up 21 percent compared with May 2017, according to the SIA, which reports numbers compiled by World Semiconductor Trade Statistics, an industry group made up of more than 55 semiconductor companies that pool sales data. The next report is not likely to be so rosy.
So, we’ll be burning the midnight oil, watching all the news feeds from China, and Washington and playing with our spreadsheets trying to tease out how and when this U.S. inspired trade-war will impact future shipments. Although we do not know at this time what the impact will be, we do know there will be an impact. Some companies will use this as an excuse to raise their prices and try and improve margins, even if they are not affected by the trade-war. Others will try to absorb the increased cost in order to remain competitive.
However, the real unknown will be the consumer’s reaction. Driven by emotion more than economics, consumers may pull back on buying that new TV, PC, or other device for fear of increased costs, and others will accelerate their buying anticipating higher prices coming.
Forecasting is never easy, and it’s being made much more difficult now by this impulsive move by the White House. Possibly, it’s a bid for votes in the upcoming mid-term elections in which case it might be short-lived. Politics and economics never mix well and should be separated as much as possible. Unfortunately, the effects of this typically poorly thought-out move by the current administration will have long term ramifications effecting more than just how many votes Trump’s party gets.