With several provinces and cities in China continuing to raise their minimum wages and some even planning to have another increase in July, notebook component suppliers are expected to see their gross margins being impacted in the third quarter, according to sources from the upstream supply chain.
Since the beginning for 2014, nine of China’s provinces and cities including Chongqing, where parts of the notebook supply chain are located, saw an average increase of 13% in their minimum wages and in July, Jiangsu province reportedly will see an increase of about 14%.
To ease the pressure, players have been adjusting their production efficiency, establishing automated production lines and developing new businesses, but this has not made much of an improvement.
New products such as Touchscreen notebooks and 2-in-1 devices also did not benefit related suppliers as much as they have been suffering from weak demand, the sources said. Touchscreen notebooks only accounted for about 10% of total notebook shipments in the first quarter and the percentage is expected to grow to 15% in the second half. 2-in-1 devices’ share are estimated to be only around 5-6%.
Currently, notebook ODMs are mainly producing notebooks at plants in Chongqing and Chengdu, western China, while their plants in coastal area of China are used for manufacturing products such as tablets, smartphones and servers.
As for automated production lines, ODMs currently have a higher difficulty to implement such a facility due to most of their work still focusing on manual workers, but component makers on the other hand are able to benefit. Battery maker Simplo Technology already reduced its personnel by 40% in 2013 through automated production lines and is expected to cut another 30% in 2014.