Lambert here: “The East Is Red Ink” is a song so familiar it’s almost impossible to hear, but if China’s industrial sector is deteriorating…
By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.
“What we witnessed in November and December was just extraordinary.”
“I’ve been a manager for almost half a century, but this is the first time I’ve seen such a large single-month drop in orders for us,” said Nidec CEO Shigenobu Nagamori. “What we witnessed in November and December was just extraordinary.”
“We saw big slumps in November and December,” he told reporters. “We have faced extraordinary changes.”
Nidec reversed its previous forecast of record revenues and profits, lowering its revenue forecast by 10% for its fiscal year that is almost over (ending March 31). The revenue forecast leads to the first year-over-year revenue decline in nine years.
And not just in China: “Orders, sales and shipments in all business segments around the world saw major shifts,” he said.
But one of the sectors that is still strong in China is demand from EV makers, Nidec said. EV production is surging, propped up by heavy government incentives. Nidec has been building a factory in China for its newly developed EV traction-motor systems. Last month, it announced that it would also build factories for these systems in Poland and Mexico, and not just China as previously planned, hoping that this strategy will get it around the US-China trade dispute.
Nidec’s debacle in November and December isn’t based on smartphones, where there had been a slew of warnings from Apple and Samsung on down, with Apple warning two weeks ago that it “did not foresee the magnitude of the economic deceleration.”
Components for smartphones aren’t a large part of Nidec’s revenues. Instead, the company is getting rattled by manufacturers in the automotive sector, the home-appliance sector, and other sectors. So this is far broader than just smartphones.
And Other Companies Have Chimed In.
Yaskawa Electric Corp., one of the world’s major manufacturers of industrial robots, including for the auto industry, cut its earnings forecast a week ago for the second time in three months, this time by 10%, blaming weak demand from China and the semiconductor industry.
Kuka Group, the biggest German industrial robots manufacturer — 95% of which was acquired by a Chinese company in a hostile takeover — issued a second profit warning on January 10, after having already warned at the end of October. It blamed “primarily” the “stronger slowdown in the automotive and electronic industry in the fourth quarter 2018, ongoing uncertainties in the Chinese automation market and negative impacts from the project business.”
On Thursday, Taiwan Semiconductor Manufacturing Co. (TSMC), the world’s largest contract chipmaker, warned that revenues would fall over 9% in the quarter compared to a year ago, the largest year-over-year decline since 2009.
The company blamed an “overall weakening of the macroeconomic outlook, including seasonally weaker demand for mobile products and high inventory levels.”
CEO C.C. Wei cited a “sudden drop in demand” for high-end smartphones, according to the Nikkei, and lamented the plunge in demand for chips used in cryptocurrency mining.
Among its customers are Apple, Huawei’s semiconductor arm HiSilicon Technologies, Nvidia, Qualcomm, Broadcom, AMD, MediaTek, NXP Semiconductors, and Xilinx.
CFO Lora Ho told reporters after the conference that TSMC had imposed a “hiring freeze” and is implementing strict cost controls in response to this situation.
The situation with the suddenly weakening demand in China has now transcended company-specific issues, such as Apple’s new generation of iPhones being too expensive or a sudden reluctance by Chinese consumers to buy American brands.
It has spread to the industrial sector that is supplying Chinese consumers with all kinds of Chinese-branded products, including electronics, cars, and appliances. This situation has deteriorated over the past few months at whirlwind speed, taking these companies by surprise, and creating deeply worrisome signals for the Chinese economy going forward.
In December, light new-vehicle sales in China plunged 13%, the fourth months in a row of double-digit year-over-year declines. Despite a stronger first half, auto sales for the whole year fell 4.1%, the first annual decline going back to 1990. Welcome to the big club of saturation and decline. Read... China’s Consumers Rattle Global Automakers as Sales Plunge.