Tag Archives: ASUS

From Taichung to Silicon Valley, Taiwan keeps pace with global markets

With over 300 companies, Taichung County in central Taiwan is the largest cluster of machine tool companies on the island. It is also the center of the components supply chain shared by Taiwan’s three major industrial alliances of bicycles, sports equipment and machine tools. Without this clustering of firms, it would be impossible for these important industries to experience their recent stellar growth.

Despite the global financial tsunami (2009-2012), Taiwan saw several of its products maintain export growth of 100 percent. They included special glass, digital cameras, mechanical arms for the machine tool industry, and components for processing machines. Other areas also grew over 50 percent in value, such as garments, knitting and the steel screw industries. According to Taiwan’s Business Weekly, the manufacture of sports equipment, auto parts, hand tool machines and plastic products also experienced over 20 percent growth.

Clustering speeds up development and delivery

The top three global socket set handle brands from Germany, Italy and Japan, use Re-Dai Precision Tools Co. in Taichung as an OEM. These socket handles are essential for repairing and maintaining BMWs, Mercedes-Benz and F1 racing cars.

Business Weekly reported that in Taiping, Taichung, there is a street lined with all the makers of computer numeric control (CNC) machine tools, and another street where all the electroplating companies operate. These clusters of 30 to 50 small businesses are capable of producing any part for bikes, machine tools or treadmills.

Habor Precise Industries Company, in Dali, Taichung, is the largest manufacturer of high-end temperature control equipment in the world. Seven of the top ten machine tool manufacturers in Japan are customers of Habor. Even the top products of the advanced PCB drilling and routing machine maker Posalux of Switzerland, the leading wafer foundry producer, Taiwan Semiconductor Manufacturing Company, and special makers in the supply chain of Apple’s products, are all made by Habor.

Orange Electronic Co. in the countryside of Tanzih, Taichung, is the only maker of wireless tire pressure monitoring systems to successfully enter the American automobile service market. Orange has beaten large competitors such as Lite-On Technology, Delta Electronics, and Mobiletron Electronics to win over Standard Motor Products (SMP) Inc, a leading distributor and maker of replacement parts for motor vehicles in the US. As a publicly traded company, Standard is so confident with Orange’s potential success they have decided to invest 25 percent in the Taiwanese company, according to Business Weekly.

To Silicon Valley, Taiwan still matters

On April 4, Facebook entered the smartphone market in a joint venture with Taiwan’s HTC to develop software for Facebook Home. In the future, the home page of their smartphones will display active news from FB, in direct competition with the core business of Google, while Google also works with Hon Hai/Foxconn to manufacture the Google glass, a wearable computer with head mounted display.

Taiwan has been a valuable partner for the US high-tech industry. Even though Apple, Google, Facebook and Amazon are squaring off with each other, they all benefit from the contributions of Taiwanese high-tech companies, Commonwealth monthly said in its cover story entitled “Taiwan still matters”. A report on the future of the technology industry in Asia, compiled by the Samsung Economic Research Institute, termed the US-Taiwan partnership as “Taiwan is a king maker for US IT companies.”

Every day there are 480 million visits to Facebook, which takes tens of thousands of servers to support. All these servers are made by Quanta Computer in Taiwan. In 2012, the global server market grew about one percent, but Quanta registered 19 percent growth due to the substantial growth of Facebook and Rackspace, a cloud and management service hosting company based in Texas. One of every seven servers in the world is made and sold by Quanta. It is estimated that sales of servers made by Quanta will overtake those sold by IBM in 2013, Commonwealth reported.

Other Taiwanese companies are also closely tied to top IT companies in the US. Hewlett-Packard is the largest foreign buyer in Taiwan, with a purchase of NT$750 billion (US$25 billion) in 2012. With the supply chain of Taiwanese companies, HP is capable of shipping two computers and two printers every second, the monthly noted.

In June 2012, Google introduced a tablet Nexus 7 in a joint branding exercise with ASUS. Sales soared immediately after launch, even surpassing iPad sales in Japan. And according to Commonwealth, Apple could not expand its empire without the Hon Hai/Foxconn Technology Group. In 2006, when Apple introduced the iPod, Hon Hai’s revenues exceeded over NT$1 trillion (US$33.33 billion) for the first time. With the subsequent introduction of the iPad and iPhone, Hon Hai’s revenues reached NT$3.5 trillion (US$117 billion) in five years, equivalent to the total revenue of the top ten manufacturers in Taiwan.

Recently, Foxconn decided to reduce its reliance on Apple by not focusing on only being solely an outside contractors, but towards developing their own products, with an especially hard push toward designing and producing large, flat screen televisions.

What’s next?

At a time of speeding growth of mobile telecommunications, the original design manufacturer (ODM) which Taiwan was proud of is no longer valuable. ODM is disappearing fast.

Lee Kun-yao, BenQ chairman, understands clearly that Google has done almost everything from the top to the bottom including hardware design, interface between users and smartphones, ergonomic engineering of the products, and even the business model after manufacturing in house. Google’s model leaves little room for Taiwan’s ODM.

In the 2013 Global Competitiveness Report (GCR) published by the World Economic Forum, Taiwan was ranked first in terms of competiveness of industrial clustering development among 144 worldwide economies. Yet despite the clustering resources, Taiwan still lags behind Germany and Japan. Business Weekly attributes the cause to a lack of innovation, as the reason Taiwan came in at 14th place in the GCR.

In the GCR’s overall rankings, Taiwan is placed No. 13, a little higher than South Korea, but far behind Switzerland, Singapore, Finland, Sweden, the Netherlands, Germany and Japan. This means merely clustering development is not sufficient. Taiwan must continue innovating to remain competitive.

At the end of 2012, Dr. Victor Tsan at the Institute for Information Industry in Taipei, warned the Economics Ministry that, if Taiwan’s ODM and OEM industries do not transform or upgrade, they will be left with the manufacturing service only, lower added value and lower unit price. This is what Dr. Tsan is worried by when contemplating the electronics and technology industries of Taiwan, according to Commonwealth.

However, Dr. Wang Ting-an, director of the Science Division of the Taipei Economic and Cultural Office in San Francisco, is confident and optimistic. He told Taiwan Insights, if Silicon Valley is the new rocket of global technology innovation, Taiwan will be working as the rocket propellant. For Apple, Google, Facebook and Amazon, Taiwanese companies have always been a necessary partner in realizing technology innovation.

Dr. Wang believes, in the face of Silicon Valley’s technology innovation, Taiwanese industry must get rid of the mentality of making only marginal profit and start industrial transformation, so as to create added value, for buyers, for consumers, and even to contribute to environmental protection. Only when the performance of Taiwan’s products and services exceeds the expectation of its customers can Taiwanese companies enjoy the benefits of high gross profits and brand recognition. “This is the only way to survive for Taiwanese industries,” stressed Wang.

Taiwan aims to develop top brands

The Bureau of Foreign Trade (BOFT) of the Ministry of Economic Affairs recently announced the results of Taiwan’s Global Brand Value Survey. According to the survey, the top five brands valued over US$1 billion included Acer, HTC, Asus, Trend Micro and Master Kong, respectively. The top four belonged to the IT industries while Master Kong belonged to the food industry.
According to BOFT, the survey was intended to encourage Taiwanese entrepreneurs to create their own brands which would then grow into internationally known brands. Taiwan aims to have a local brand in the world’s top 100, with at least a threshold value of US$3 billion, within ten years.

OEM sector shakes off economic downturn, earn record profits

Despite the continuing global economic woes Taiwan’s original equipment manufacturers (OEMs) are emerging with their heads held high. While their 3 to 4 percent profit margin may seem rather unspectacular, these statistics hide a resurgence that is hard to ignore, according to the Central News Agency. In fact, through innovation, expansion and cost control, many Taiwan OEMs have actually earned record high profits in the wake of the 2009 financial crisis.

What is even more surprising is the fact that despite a fall in profit margins from 15 to 4 percent Taiwan’s notebook OEMs have rolled out record high earnings in the last three years.

Companies with record high after-tax profits in 2009 and exceptional earnings per share (EPS) include: Quanta Computer with profits of NT$22.3 billion (US$6.9 billion) and EPS of   NT$6.09 (US$0.19), Compal Electronics with profits of NT$19.2 billion (US$6 billion) and EPS of NT$4.91 (US$0.15) and Wistron Corporation with earnings of NT$9.135 billion (US$285 million).

Constant innovation is the key

Unlike their Chinese counterparts, Taiwan’s OEMs do not rely on low labor costs to make a profit. The main reason behind the continued survival and growth of the island’s notebook OEM manufacturers is their continual technological innovation and their ability to add value to their products.

Perhaps an industry with a 3 to 4 percent gross profit margin does not merit a discussion and maybe a sector that does not evolve is destined to stagnate. Indeed, in order to survive, every business must innovate. Some OEMs have made the transition to a brand name in their own right, for example ASUS and Acer. Although this transition is difficult to achieve, companies can create new value, according to the Central News Agency.  The key is “diversified developments” in a common direction – from desktop computers  to notebook computers,  and  extending to the 3C industry (computer, communication and consumer electronic parts), televisions, auto parts, medical equipment, and even furniture and furnishings.

In the future, not only 3C industries will be high-tech. Technology will be integrated into automobiles, furniture and even home furnishings, making these smart electronic products as well. Taiwan’s OEM industries have expanded from the 3C industry gradually to infiltrate every corner of the home, thus expanding their market. Furthermore, these companies will form alliances to create new business opportunities.

After twenty years, Taiwan’s OEM sector has accumulated ample experience in production technology and design capability. In the face of the booming Chinese market, Taiwanese businesses believe they have what it takes to compete.  The industry is aided by a new generation of creative design elites who have studied abroad, combined with the experience of the older generation of production management, making the partnership ready to handle the Chinese market. At this point, the growth of the Chinese economy provides Taiwan businesses with many mouth-watering opportunities.

Brand name versus OEM?

In the tussle between brand name and OEM, OEM leaders know where their commitment lies.  Speaking to the Central News Agency,  T.H. Tung, chairman of Pegatron, which spun off from ASUS in 2008 to focus on the OEM business, said that design expertise and the foundry will be at the core of the  business and will comprise  the true value of Pegatron.

Ray Chen, general manager of Compal Electronics, is also pragmatic when it comes to what is important and believes the 3 to 4 percent profit margin is a smoke-screen. “Do not underestimate us … ignore the gross margin figures, pay attention to the solid profit rates and profit numbers,” he stressed. Of course, everyone dreams about his brand, but not everyone can realize that dream … better to understand one’s own expertise, and take full advantage of it,” he said.