A strong NT dollar has put pressure on the profit margins of Taiwan-based IC distributors. Combined with the rise in raw materials causing semiconductor manufacturers and component makers to raise quotes, IC distributors could see more uncertainties for 2011.

WT Microelectronics indicated that since Taiwan's IC distributors quote in US dollars while operating expenses are denoted in NT dollars, the exchange rate fluctuations have eaten into their profit margins. Typical gross margins for IC distributors are around 6-7% and some are as low as 4%.

The NT dollar went up 8% in the fourth quarter of 2010, and Maxtek Technology's gross margin was about 7.9% in the third quarter, according to the company, noting that IC distribution has always been a low margin business. Many distributors incurred losses in the fourth quarter from currency exchange rates. WPG Holdings for example lost tens of millions of dollars from exchange rates in the fourth quarter, which has prompted the company to be more conservative for the first quarter of 2011.

Most IC distributors had predicted the US dollar: NT dollar exchange rate to be around 29 for the first quarter, but the rate briefly fell below 28 and rebounded due to the interference by Taiwan's central bank.