Three outstanding Taiwanese businesses are taking advantage of the development of AI

Three potential Taiwanese winners in the technology sector are highlighted by Eric Chan, co-manager and investment director of the Aberdeen Asian Income Fund

Asia is positioned to propel global economic expansion, and by 2025, it is predicted to contribute over half of global GDP growth. While dynamic economies in Southeast Asia, like Indonesia and Thailand, are expanding quickly, there are still significant demographic dividends in Asia that have not yet been fully realized. These giants include China and India.

Since half of the Asia-Pacific region outside of Japan is currently yielding more than 2.5 percent, corporate Asia is becoming more focused on dividends. Because of Asia's strong balance sheets and strong earnings, which offer strong support for rising dividends, we think there is little chance of dividend cuts.

We search Asia for quality, dividend-paying businesses with a sustainable competitive edge that operate in expanding industries. We see genuine potential winners in the Asian technology hardware and semiconductor supply chain names, and we are actively investing in the future of artificial intelligence.

Champion of chips from Taiwan.

The largest holding of the fund, TSMC (Taipei: 2330), is a manufacturer of semiconductors that are essential components for enabling the application of AI. In the last few decades, it has established a significant production advantage. It dominates the world market and has established connections with important clients.

Potential competitors would find it challenging to enter the market because replicating TSMC's production system would require significant financial outlays. Its products are also in high demand. As a result, TSMC can produce steady free cash flows. This supports increasing dividends, and thus far, the group's shareholders have benefited from strong capital and dividend growth.

Sunonwealth, a Taiwan-based company (Taipei: 2421), manufactures cooling fans for data centers. It serves customers in sectors including network communication, automotive electronics, and information technology. As a niche player, Sunonwealth improves its market position by being a preferred partner for customized cooling solutions.

In keeping with its innovative spirit, it has also created the world's smallest and thinnest magnetic levitation motor fan, the first-ever MagLev motor fan. Advanced cooling solutions are becoming more and more necessary as AI technology advances. Thus, Sunonwealth plays a crucial role in the supply chain for AI.

Historically, the company has maintained a healthy dividend payout and an alluring yield due to its robust cash flows and balance sheet.

Taiwan-based Accton (Taipei: 2345) manufactures high-speed networking switches for major US corporations like Facebook and Amazon, as well as other companies like HP, Nokia, and Ericsson. The company has over 30 years of solid experience, a wide range of products, and a strong edge in research and development.

Additionally, the company has high entry barriers, which discourages competitors. This is brought about by intricate technical designs, strong ties to well-known, well-established businesses, protracted qualification periods, and cost competitiveness fueled by scale advantages.

It has expanded the scope of its switch business, which now focuses on AI accelerators, in addition to diversifying its core clientele beyond Amazon (it now counts Intel and Meta among its clients). Acctons' capacity to provide consistent income growth over the long run is supported by its ongoing improvement in profitability.