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Taiwan Suppliers Predict Flat Year

Published January 4, 2010

BY NICOLE FORMOSA

TAICHUNG, Taiwan—Taiwan executives project little or no growth in 2010 as the island’s manufacturing industry stabilizes in the wake of the global recession.

“It’s been a tough year for everybody,” said Michael Chen, Ideal’s vice president of marketing for North America, commenting on 2009 business.

Taiwan bicycle exports fell 20 percent for the first eight months of 2009 and 3.3 percent in value, and bicycle parts exports were down 9.24 percent, according to the Taiwan Bicycle Exporters Association.

There is a silver lining, though, said Walter Yeh, executive vice president of the Taiwan External Trade Development Council: a complete bicycle’s average unit price increased by 20 percent—from $236 in 2008 to $285 in 2009.

“Taiwan makes better and better bicycles for our industry. It’s a hub for high quality bicycles and bicycle parts,” Yeh said, speaking to journalists at a November Taipei Cycle preview in Taiwan

Even so, the slide in orders as a result of stalled consumer spending backed up the supply chain, creating high inventory levels and decreased sales revenue for Taiwanese manufacturers in 2009.

Tony Lo, chief executive officer of Giant, the island’s largest manufacturer, acknowledged his company holds excess inventory in the United States although Europe has fared much better.

Lo thinks 2010 sales will be flat at best, with high-end unit sales absorbing the brunt of an ongoing consumer pullback.

“The U.S. is a very mature market, while in Asia many of the developing countries are offering new opportunities,” he said.

Through November 2009, Taiwan sales revenue for Giant Manufacturing slid 9.7 percent, while Merida’s revenue dipped 4 percent compared to 2008. But, 2008 was also exceptional for both companies—Giant ended that year up 51 percent over 2007 for Taiwan operations and Merida finished the year up 21 percent, according to numbers reported on the Taiwan Stock Exchange. Excluding 2008, Merida’s 2009 revenue through November was up almost 12 percent over 2007, while Giant surpassed 2007 earnings by 28 percent.

Ideal, the No. 3 manufacturer in Taiwan, turned out a 30 percent revenue increase over 2008 at the end of November, even after double-digit sales declines in August, October and November. The boost is due in part to a change in business philosophy driven by new company president Hermes Chang, noted William Cheng, manager of Ideal’s marketing department.

Chang took over as president in March with an eye on increasing profitability. He quickly worked to reinforce the sales team and focused on attracting customers with lower volume, higher priced product. A remodel at the Taichung factory in June realized efficiencies that helped increase output, Cheng said.

Cheng expects that 2010 will be a short model year given the back stock of 2009 inventory.

In early December, customers’ 2011 inquiries had mostly been focused on low and mid-range price-point bikes, said Ideal’s Michael Chen.

“We see high inventory and slow sales, but as a supplier we can play a key role in a recovery,” Chen said, predicting flat production levels for 2010. Ideal builds bikes for dozens of companies, including its own brands—Fuji, Kestrel, SE and Breezer—as well as Pacific, Cannondale and Eddy Merckx.

Other manufacturers BRAIN spoke with during recent factory visits in and around Taichung echoed reports of slow sales in 2009, but forecasts for 2010 and beyond were generally optimistic.

Lily Ding, sales director at JD Components, a supplier to brands such as Giant, Trek, Merida and Race Face, said high-end business at the Chang Hua Hsien factory was off 15 to 18 percent in 2009 after record years in 2007 and 2008.

Despite that, Ding said the factory kept all of its nearly 300 workers on staff during the off-season, utilizing downtime to cross-train employees and improve production processes for the future. Ding doesn’t expect a full rebound in 2010 but foresees orders being down anywhere from 2 to 10 percent depending on the customer.

The bicycle business for Duro Tires, which is owned by Hwa Fong Rubber Co, Ltd. in Chang-Hua Hsien, was tracking down 20 percent in November as sales to OEs slowed, but Steve Chiang, sales manager for Duro’s export department, expects to see some recovery in 2010.

“It’s coming back. We have confidence we will be like 10 percent more than what we have this year,” Chiang said.

Duro has also ramped up attention on the aftermarket in an effort to capture market share from heavyweights Kenda and Maxxis. Its U.S. office in Covington, Georgia, is aggressively courting new IBDs, Chiang said.

Cheng Shin Rubber, the $2.8 billion parent company of Maxxis and an OE producer for brands like Bontrager, Continental and Specialized, saw a similar downturn in 2009. OE sales were down 15 to 20 percent, while aftermarket revenue fell 5 percent, said George Mao, managing director of international sales.

Mao said he’s seen some customers hold back on orders in panic over the recession and predicted that 2010 sales could be on par with 2007 levels.

Still, the bike division makes up just 15 percent of Cheng Shin’s revenue and the company as a whole expected sales to surpass $3 billion for the first time in 2009, said Leo Liao, of Cheng Shin’s international sales department.

Tomonori Suenaga, sales development senior manager for SR Suntour, which earns 90 percent of its annual revenue from the OE side, said business was down 20 percent compared to 2008, which was a record year for the suspension company.

But, fourth quarter revenue showed signs of substantial growth, and Suenaga expected that to continue into 2010. Suntour produces 1.5 million suspension forks a year at its Chang-Hua factory.

“We are confident we’ll do better than this year, at least 10 percent plus,” Suenaga said.
2008 to $285 in 2009.

“Taiwan makes better and better bicycles for our industry. It’s a hub for high quality bicycles and bicycle parts,” Yeh said, speaking to journalists at a November Taipei Cycle preview in Taiwan

Even so, the slide in orders as a result of stalled consumer spending backed up the supply chain, creating high inventory levels and decreased sales revenue for Taiwanese manufacturers in 2009.

Tony Lo, chief executive officer of Giant, the island’s largest manufacturer, acknowledged his company holds excess inventory in the United States although Europe has fared much better.

Lo thinks 2010 sales will be flat at best, with high-end unit sales absorbing the brunt of an ongoing consumer pullback.

“The U.S. is a very mature market, while in Asia many of the developing countries are offering new opportunities,” he said.

Through November 2009, Taiwan sales revenue for Giant Manufacturing slid 9.7 percent, while Merida’s revenue dipped 4 percent compared to 2008. But, 2008 was also exceptional for both companies—Giant ended that year up 51 percent over 2007 for Taiwan operations and Merida finished the year up 21 percent, according to numbers reported on the Taiwan Stock Exchange. Excluding 2008, Merida’s 2009 revenue through November was up almost 12 percent over 2007, while Giant surpassed 2007 earnings by 28 percent.

Ideal, the No. 3 manufacturer in Taiwan, turned out a 30 percent revenue increase over 2008 at the end of November, even after double-digit sales declines in August, October and November. The boost is due in part to a change in business philosophy driven by new company president Hermes Chang, noted William Cheng, manager of Ideal’s marketing department.

Chang took over as president in March with an eye on increasing profitability. He quickly worked to reinforce the sales team and focused on attracting customers with lower volume, higher priced product. A remodel at the Taichung factory in June realized efficiencies that helped increase output, Cheng said.

Cheng expects that 2010 will be a short model year given the back stock of 2009 inventory.

In early December, customers’ 2011 inquiries had mostly been focused on low and mid-range price-point bikes, said Ideal’s Michael Chen.

“We see high inventory and slow sales, but as a supplier we can play a key role in a recovery,” Chen said, predicting flat production levels for 2010. Ideal builds bikes for dozens of companies, including its own brands—Fuji, Kestrel, SE and Breezer—as well as Pacific, Cannondale and Eddy Merckx.

Other manufacturers BRAIN spoke with during recent factory visits in and around Taichung echoed reports of slow sales in 2009, but forecasts for 2010 and beyond were generally optimistic.

Lily Ding, sales director at JD Components, a supplier to brands such as Giant, Trek, Merida and Race Face, said high-end business at the Chang Hua Hsien factory was off 15 to 18 percent in 2009 after record years in 2007 and 2008.

Despite that, Ding said the factory kept all of its nearly 300 workers on staff during the off-season, utilizing downtime to cross-train employees and improve production processes for the future. Ding doesn’t expect a full rebound in 2010 but foresees orders being down anywhere from 2 to 10 percent depending on the customer.

The bicycle business for Duro Tires, which is owned by Hwa Fong Rubber Co, Ltd. in Chang-Hua Hsien, was tracking down 20 percent in November as sales to OEs slowed, but Steve Chiang, sales manager for Duro’s export department, expects to see some recovery in 2010.

“It’s coming back. We have confidence we will be like 10 percent more than what we have this year,” Chiang said.

Duro has also ramped up attention on the aftermarket in an effort to capture market share from heavyweights Kenda and Maxxis. Its U.S. office in Covington, Georgia, is aggressively courting new IBDs, Chiang said.

Cheng Shin Rubber, the $2.8 billion parent company of Maxxis and an OE producer for brands like Bontrager, Continental and Specialized, saw a similar downturn in 2009. OE sales were down 15 to 20 percent, while aftermarket revenue fell 5 percent, said George Mao, managing director of international sales.

Mao said he’s seen some customers hold back on orders in panic over the recession and predicted that 2010 sales could be on par with 2007 levels.

Still, the bike division makes up just 15 percent of Cheng Shin’s revenue and the company as a whole expected sales to surpass $3 billion for the first time in 2009, said Leo Liao, of Cheng Shin’s international sales department.

Tomonori Suenaga, sales development senior manager for SR Suntour, which earns 90 percent of its annual revenue from the OE side, said business was down 20 percent compared to 2008, which was a record year for the suspension company.

But, fourth quarter revenue showed signs of substantial growth, and Suenaga expected that to continue into 2010. Suntour produces 1.5 million suspension forks a year at its Chang-Hua factory.

“We are confident we’ll do better than this year, at least 10 percent plus,” Suenaga said.

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