Watching and waiting
COMPANIES WITH STAKES IN CHINA AND TAIWAN WORRY OVER ESCALATING TENSIONS
By John Boudreau
Mercury News
As tensions between China and Taiwan escalate to their highest pitch in years, Silicon Valley executives who operate in both countries are nervous but believe that in the end, money, not missiles, will rule.
Valley companies now rely much more heavily on Asia for product design, manufacturing and markets than ever before. But that means they also have more to risk by China's verbal fire, triggered by what it perceives as Taiwan's attempts to inch closer to independence from the mainland.
And this time, the rhetoric is particularly fierce. Chinese generals were quoted as warning that Taipei was on the ``abyss of war.''
``That's a notch up from the annual war games that have been going on forever,'' said Brian Halla, president and chief executive of National Semiconductor in Santa Clara. His company, which has a chip design center in Taiwan, is opening a testing and assembly plant in Suzhou, China, in the spring. ``It's a bit worrisome.''
China, which declares Taiwan as part of its territory, has threatened to use force to prevent Taiwanese independence. Recently, Taiwan President Chen Shui-bian -- who faces re-election in March -- vowed to hold a referendum calling on China to withdraw ballistic missiles aimed at the island. That only triggered more threats of force from China -- and more worries for business.
``The worst climate is uncertainty,'' said Robert Lee, chief executive of Achievo, a Dublin software company with operations in China. He is also chairman of the trade group Asia America Multitechnology Association. ``There is a lot of that now.''
In an era in which tech companies keep inventories as low as possible, ``even a short-term disruption can hurt,'' Lee said. It doesn't take too many supply-chain hiccups to cause a company to miss its quarterly earnings and get its stock hammered, he said.
`Big disaster'
From Shanghai to Hsinchu to San Jose, the stakes are high. A serious disruption in the Silicon Valley-Taiwan-China triangle of operations would cripple the global information-technology manufact- uring industry.
``That would be a big disaster,'' said Gary Wang, chairman of the Monte Jade Science and Technology Association and a vice president of 3Com. ``Everybody is using the foundries in Taiwan. Everybody is using the PCs, portable computers, hardware designed in Taiwan and manufactured in China.''
Taiwan produces about a third of the world's chips, more than 60 percent of its laptop computers and 70 percent of the mother boards, among other things. Personal-computer giants Dell and Hewlett-Packard buy most of their products in Taiwan and China.
Venture capitalist John-Paul Ho said one of his investors recently asked him if they were taking a risk by investing in the China-Taiwan region.
``I said, `Well, do you own Dell stock?' The risk exists,'' said Ho, managing partner of Crimson in Palo Alto. ``But we all know that whenever there is an election, that's when the rhetoric gets hot.''
In addition to automobile parts and computer chips, the United States depends on China and Taiwan to finance the nation's budget deficits by purchasing U.S. Treasury bonds, said Wells Fargo economist Sung Won Sohn.
``In case of a shooting war, they would not be able to buy as many,'' he said. ``That could have an effect on our financial markets and interest rates.''
Clashes between the two sides have occurred repeatedly since 1949, when China's National Party Leader Chiang Kai-shek fled with supporters to the island after being defeated by the Communists on the mainland. In the 1950s, in a dispute over two islands, China launched shells and Taiwan claimed to have shot down planes. In 1996, China fired missiles off Taiwan's coast, which drew U.S. military ships to the region.
Those tensions play out in the most simple transactions, which can hinder business. Executives have long complained that they cannot get on a plane in Taipei and fly to Shanghai, for example. Rather, they must be routed through Hong Kong or another city, a journey that can take a day instead of about two hours.
Fear of labels
To avoid being caught in the crossfire, many company executives refuse to say anything in public about cross-strait politics for fear of angering China, which they say keeps close tabs on the U.S. and Taiwan press.
``For those who do business between Taiwan and China, they have to be very careful,'' Wang said. ``In private, they talk about it. But in public, they don't want to be labeled by either side. If they say they are a strong supporter of Taiwan's independence, I guarantee you, they could not get into China.''
Still, while nerves have been jangled by the recent cross-strait verbal jousting, valley companies believe the economic ties between Taiwan and China will, ultimately, prevent dangerous maneuvers -- on either side.
``In Asia, business and politics are at the opposite ends of the spectrum,'' Halla said. ``What is good for business is very much embraced.''
Indeed, Taiwan companies have invested as much as $100 billion on the mainland. Perhaps 1 million Taiwanese live in China, and numerous tech companies in China are run by executives from the island.
Silicon Valley companies tend to view the region as one entity, said Hsing Kung, senior vice president of Opnext, an optical communications company with an office in Fremont and operations in China and Taiwan.
``We know the two sides are so economically tight,'' he said. ``It's simply impossible to separate them.''
In the end, it's that tie that will prevent overt military action, said Gina Gloski, vice president of worldwide manufacturing operations for Sunnyvale-based eSilicon. The fabless semiconductor company has a partnership with foundry giant Taiwan Semiconductor Manufacturing Co.
``I really believe both sides want to resolve this so they can both make money,'' she said. ``But they both have to save face.''
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Contact John Boudreau at jboudreau@mercurynews.com or (408) 278-3496. bayarea.com |
