Morgan Stanley issues revenue decline alert
The New Taiwan Dollar's (TWD) significant appreciation against the US dollar in 2025 has far-reaching implications for the valuation multiples of key players in the Taiwanese tech hardware sector, including companies like Taiwan Semiconductor Manufacturing Company (TSMC), Largan Precision, Genius Electronic Optical, Innolux, and AU Optronics.
### Impact on the Sector
The TWD's sharp rise, reaching levels around 29.85 TWD/USD, has eroded Taiwanese tech hardware exports' price competitiveness in global markets, potentially compressing profit margins and negatively affecting earnings multiples such as P/E and EV/EBITDA. The Taiwan Institute of Economic Research has reported a contraction in the manufacturing sector in May 2025, largely due to this currency effect, reflecting reduced earnings visibility and downward pressure on valuation multiples.
On the flip side, the stronger TWD reduces import costs, easing inflationary pressures and potentially supporting profitability to some extent.
### Company-Specific Considerations
TSMC, the world's largest contract chipmaker, faces margin pressure due to the stronger TWD, as its revenue is USD-denominated while many operating costs are in TWD. This could put downward pressure on its forward P/E multiples, though TSMC's industry leadership and strong demand could provide relative resilience.
Camera lens suppliers Largan Precision and Genius Electronic Optical, as well as flat-panel makers Innolux and AU Optronics, are more reliant on export markets and vulnerable to pricing pressure from the strong TWD. Their valuation multiples might see more compression if revenue growth slows due to reduced overseas demand, despite potential cost savings from cheaper imports.
### Investor and Market Perspective
The TWD's appreciation also signifies investor confidence in Taiwan's broader economy, attracting foreign capital, which can support equity valuations to some degree despite sectoral challenges. However, valuation multiples are likely to face downward pressure overall for export-oriented tech hardware firms due to narrower earnings outlooks driven by currency impacts and ongoing US-Taiwan trade tariff uncertainties.
### Outlook
Morgan Stanley has issued a warning about a potential 10% revenue decline for Taiwan's tech hardware sector this year. Many firms adopt natural hedging strategies, but the steep appreciation of the NT dollar leaves limited room to absorb shocks for companies heavily reliant on Taiwan-based production, according to Morgan Stanley analyst Sharon Shih.
- The stronger New Taiwan Dollar could potentially affect the investing strategies in the Taiwanese tech hardware sector, as TSMC's forward P/E multiples might be impacted due to margin pressure from the USD-denominated revenue and TWD operating costs.
- The technology sector in Taiwan may experience a decrease in valuation multiples, particularly for export-oriented firms such as Largan Precision, Genius Electronic Optical, Innolux, AU Optronics, and TSMC, due to the impact of the stronger TWD on profit margins and earnings multiples, as well as ongoing trade tariff uncertainties.
