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September 20, 2017

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Technology industry's nonoperating revenues see fruitful gains: firms

TAIPEI, Taiwan -- The technology sector recently reported rising nonoperating revenues, with Quanta Computer (廣達), and Foxconn (鴻海) leading the industry, yielding NT$24.836 billion and NT$23,932 billion respectively.

At 85 percent of pre-tax net profit, Quanta's nonoperating revenue represents a significant portion of the company's total earnings for last year. It vastly exceeds Foxconn's nonoperating revenue, which came to 20.2 percent of pretax net profit.

The trend for rising nonoperating revenues was noted with a number of companies in Taiwan's technology sector, including UMC (聯電), Asus (華碩), Innolux (群創), TSMC (台積電), AU Optronics (友達), Delta (台達電), Pegatron (和碩), and Tatung (大同), which all ranked just behind leaders Quanta and Foxconn. Reports indicate that the top 30 ranking companies all reported nonoperating revenues exceeding NT$1 billion.

Electronic-device case maker Catcher Technology (可成) was reported to have yielded gains representing over NT$6 per share from its efforts in hedging against the foreign exchange-rate risk of the yen. Meanwhile, Hermes-Microvision, whose share price recently topped all others in the Taiwan index, was reported to have yielded NT$69.11 million from the sale of memory maker Elpida's debts, which were held by its subsidiary based in Japan and represented a contribution of NT$1 per share.

In the past, efforts in generating nonoperating earnings were conventionally frowned upon, according to industry commentary, with some believing that excessive revenues in this category were a cause for alarm. Many analysts believed endeavors in generating nonoperating profits represent a lack of focus in a business organization. However, industry commentators have noted that amid a trend of declining margins observed throughout the technology sector, opinions are shifting as enterprise activities can no longer be easily segmented into operating and nonoperating. In current circumstances, companies are required to engage in a number of nonoperating activities, including exchange-rate hedging, reinvestment, diversification, and establishment of overseas operations, according to industry commentary.

However, institutional investors expressed concerns over the trend, noting that an enterprise should ideally be driven by its main operations, with annual earnings reinvested toward developing better products, thus leading to improved performance. The long-term effects of the perceived over-reliance on nonoperating revenue sources remains to be seen, said institutional investors.

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