TAIPEI: Taiwan technology stocks are poised for potential gains next year as new products hit the market and as companies elsewhere cut costs by outsourcing some production to Taiwan companies. The Macquarie Group says these two market factors could add further impetus to the TAIEX index.

Companies may gain especially from outsourcing by Japanese companies and demand for third-generation mobile phone handsets, Macquarie said in a report yesterday.

"In the past few years, Taiwan has narrowed the technological and design capability gaps with Japan," the Macquarie analysts led by Daniel Chang said. "Taiwan has been building a solid and complete component supply chain."

Technology stocks on the MSCI Asia-Pacific Index that excludes Japan have jumped 64 percent this year on speculation that demand for computers and other electronics will increase as companies launch additional products and as spending rebounds. That is better than the 42 percent gain in the regional benchmark index and is the best performer among 10 industry groups.

Increased outsourcing from Japan is a "mega trend", as many brand vendors are trying to contract out manufacturing to Taiwan to secure profitability, Macquarie said.

Wistron Corp, the world's third-largest maker of laptops and Altek Corp, a camera maker, will gain most from subcontracting.

MediaTek Inc, Taiwan's largest chip designer, will be the "key beneficiary" as mainland telecommunications operators increase their capital expenditures to offer third-generation, or 3G, services. Macquarie expects the replacement cycle for mainland 3G to start in 2011 and handset makers "that find favor with mainland operators should enjoy a corresponding market share."

Taiwan technology companies will also gain because of new products next year, the research house said. Acer Inc and Wistron may triumph on the introduction of Microsoft Corp's new operating system, Windows 7, and contract makers such as Wintek Corp and Largan Precision Company Ltd may thrive on contracts to manufacture Apple's iPhone and potential new products, the report said.

Bloomberg News

(HK Edition 07/31/2009 page2)