The recent earnings call from TSMC conveyed an optimistic message. However, downstream brand manufacturers are adopting a more cautious stance regarding future market demand changes. Brand manufacturers believe that the US-China tariff war will disrupt supply chains, and any additional costs incurred from relocation will not only be shared across the supply chain but also reflected in the end market, potentially affecting consumer purchasing power.
The Trump administration's fluctuating tariff policies have created uncertainty, leading to widespread concerns. During TSMC's earnings call on April 17, despite the global trade tariff landscape being fraught with unpredictability, no significant changes in customer behavior were observed. TSMC maintained its full-year outlook and capital expenditure plans unchanged.
Diverging perspectives between TSMC and consumer brands
Observing the industry from a high vantage point, TSMC's perspective diverges significantly from that of downstream consumer brands, which hold a relatively conservative view for the second half of the year. Industry assessments suggest limited impact on the business market; however, the consumer market is likely to feel the effects due to potential threats from tariffs causing supply chain shifts and resulting in increased costs that could dampen market consumption capacity.
Additionally, brand manufacturers pointed out that the interconnected nature of the consumer market means that recent fluctuations in financial markets and sharp declines in stock prices have adversely affected consumer confidence, which will negatively impact the consumer electronics market. While large enterprises may have some resilience in the business sector, small and medium-sized enterprises are expected to tighten their capital expenditures.
Pressure on the NB and mobile phone sectors
The notebook (NB) and mobile phone sectors are highly interlinked with the consumer market. Under competitive pressure, profit margins from brands to suppliers are already thin. If tariffs increase, passing on costs to consumers becomes inevitable; however, price hikes will affect sales volumes. Each company has differing views on how to balance volume and pricing, yet it is clear that overall industry impacts will be negative.
Recently, the US has implemented a series of unexpected tariff policies that frequently change and lack detailed implementation guidelines, leaving NB brand manufacturers feeling uneasy and concerned. The industry generally believes that relocating supply chains from China to other countries is the best option amid escalating tensions between the US and China, with Vietnam, Thailand, and Mexico being viable alternatives.
Prior to the imposition of equivalent tariffs, NB brand manufacturers had actively ramped up shipments, driving shipments for ODMs to peak in March. Subsequently, the US announced exemptions for NBs, mobile phones, and servers, though there remains uncertainty about when these might again face tariffs, prompting companies to continue expanding production capacities outside of China.
Brand manufacturers noted that regardless of whether they relocate to Vietnam, Thailand, or Mexico, yield rates do not match those of China. Yield rates directly correlate with costs, meaning that even if tariffs can be avoided, production costs will rise. For the low-margin NB sector, this represents an unbearable burden, making price increases to pass costs onto consumers seemingly unavoidable.
However, despite many brand manufacturers acknowledging the need to raise prices, market prices have remained stable thus far, primarily because companies still have inventory to manage. No one wants to be the first to initiate a price hike, fearing it would impact sales. Companies are choosing different paths between sales volume and profits, but what is certain is that new costs must be absorbed by someone, and such costs will inevitably have negative repercussions.
The NB industry initially projected single-digit growth for 2025; however, most forecasts have now turned conservative, estimating flat performance or even a slight decline. This shift is closely tied to the recent US tariff policies, which are expected to alter shipping patterns, possibly balancing shipment proportions between the first and second halves of the year.
Article translated by Charlene Chen and edited by Joseph Chen
