## Why Are Taiwanese Chip Stocks Under Pressure? Analyzing the Cause of the Sharp Drop from Asia Manufacturing PMI

In this year's end correction of the Taiwan stock market, chip stocks have become the hardest hit. TSMC's stock price has recently declined slightly, and industry leaders like UMC and Silicon Motion-KY have also pulled back. What is the real driving force behind this? The answer points to a key indicator—**the continued weakening of Asia manufacturing PMI**.

According to the latest data, China's official manufacturing PMI has fallen for two consecutive months to 48.7, breaking below the critical 50 expansion/contraction line, hitting a new low for 2025. South Korea's manufacturing index dropped to 49.2, and Taiwan's also declined to 49.8. These figures represent—**industrial activity is contracting**—which directly impacts the chip industry, heavily reliant on exports.

## One Reason for the Taiwan Stock Market's Sharp Drop: Rapid Decline in Export Orders

Why are chip stocks particularly sensitive to PMI data? The key lies in three characteristics:

First is **high export dependence**. Memory, logic chips, automotive ICs, and other products mostly rely on overseas orders. When global demand cools, order reductions immediately reflect in shipment volumes.

Second is **the fragility of the globalized supply chain**. Raw material procurement, packaging, upstream and downstream processes are dispersed across regions. When Asian manufacturing is generally weak, delivery delays and cost pressures rise simultaneously, hitting wafer foundries and packaging/testing plants hardest.

Third is **the sensitivity of orders and inventories**. When the market tightens, manufacturers immediately cut production, leading to excess inventory buildup, which compresses gross margins and affects the entire industry chain, including IC design and packaging/testing.

## Current Market Situation: Short-term Adjustment Is Evident, Medium-term Visibility Diminishing

The voice from the supply chain is the most straightforward. Several Taiwanese IC design and packaging/testing companies have indicated that while orders for 2025 are still within expectations, **visibility for 2026 has significantly decreased**. Inquiries for automotive MCUs, power management ICs, and NOR Flash are much more conservative than in previous years, and the market is adopting a defensive stance on medium- and long-term demand.

Analysts warn that if low-end chips face disruption or shortages, it will directly impact vehicle and industrial control equipment production, with chain reactions potentially affecting full-year performance.

US chip stocks are also under pressure. Leaders like Nvidia, Intel, and AMD have experienced increased stock volatility recently. The market attributes this to the contraction of Asia manufacturing PMI and rising uncertainty in automotive and industrial control chip orders. Whether semiconductor valuations can stabilize in early 2026 depends on whether the industry can bottom out and rebound in time.

## The Second Reason for the Taiwan Stock Market's Sharp Drop: Structural Pressures Emerge

Investors need to pay attention to three core risks:

**Supply chain concentration risk**—Mature process chips (40-180nm) depend on a few manufacturers and a single region. Any supply disruption could amplify market volatility.

**Geopolitical and trade variables**—Continued US-China tensions and regional conflicts affect order flow and capacity planning predictability.

**Uncertain pace of global demand recovery**—If orders do not rebound as expected in the first half of 2026, stock price recovery and investment returns could be delayed.

## How Should Investors Respond: Cautious Positioning Rather Than Blind Full Allocation

This supply chain pressure reflects a global demand slowdown. If geopolitical and trade frictions persist, order flows and supply chain structures may undergo reshuffling. **In the short term, high volatility has become the norm**, and investors should monitor order changes and capacity planning trends.

However, it is important to note that the major trends of technological transformation, AI and data center demand, and medium- to long-term supply chain restructuring remain unchanged. For long-term investors, this is a period to carefully select stocks—focusing on those with solid fundamentals, clear order visibility, and resilient supply chains—since chip stocks could still be growth drivers over the next 2-3 years.

In other words, now is not the time for bold deployment but rather for expecting a period of instability, employing stricter stock selection standards to navigate the industry adjustments behind the Taiwan stock market's decline.