Tong Zixian: There may be a “black swan” in the second half of the year, and the inflation monster must be tamed first | Urban Tech Story

Tong Zixian, chairman of Pegatron, said today that there may be a black swan event in the second half of the year, but the electronics industry will not be “shattered.” Interest rates and inflation may lead to higher capital costs and thinner profits for companies.

Taiwan Yushan Technology Association and KPMG An Hou Jianye United Accounting Firm jointly held the 2022 Yushan An Hou Forum today to discuss key strategies to enhance the sustainable value of enterprises. Tong Zixian attended as the chairman of Yushan Science and Technology Association and was interviewed by the media.

Talking about the prosperity of the second half of the year, Tong Zixian said with a smile that he would watch the crystal ball every year, but it would not “fall apart”. The philosophy of survival in troubled times is to be financially sound. Some industries’ cash is bet on accounts receivable, while others are on inventory. Therefore, IC design companies are working hard to destock, and it may take 3 to 4 months to adjust the period, but with a few black swans running out, the adjustment time may be extended.

He cited inflation as an example, putting a lot of pressure on companies that need huge amounts of money. Enterprises find that interest becomes more expensive, and profits become thinner, because one of the important tools of operation is capital. Interest can be regarded as the “rent” of borrowed funds. Now the rent has increased by 5 times, of course, the operation of the enterprise will be more difficult.

Tong Zixian said that although Pegatron needs to bear the risk of capital turnover, the inventory risk will be borne by the big brand customers themselves, and the risk of accounts receivable is not high.

Tong Zixian observes that politically, countries are undecided, and there may be black swans in the second half of the year. The biggest variable in this wave of inventory adjustment is the economic ups and downs. The first monster to tame is inflation; if inflation is as high as 6% to 7%, the votes of politicians will not be good, so the US Federal Reserve (Fed) uses violent interest rate means, hoping to reduce inflation to 2% to 3%.

He said that if prices keep rising, many people will not be able to bear it, just like exchange rate manipulation. If the exchange rate continues to depreciate and exports are prosperous, in fact, people’s wallets will shrink in disguise, and iPhones will become more expensive.

In response to the material situation, Tong Zixian said that there will always be problems with long and short materials, but the market is very likely to adjust, not necessarily from the production side, but also from the demand side to persuade customers to reduce the purchase of certain components.

(Author: Wu Jiahao; first image source: shutterstock)