Whereas in the past, Taiwanese firms played a significant role in the production of the iPhone, this was not the case with the iPhone 5 when it was released in September, according to a recent study by iSupply. Taiwanese companies made a contribution of just 10 percent to the whole supply chain of the iPhone 5, accounting for profits of less than one percent.
Despite this worrying situation for Taiwan’s original equipment manufacturers (OEMs), Taiwan’s Ministry of Economic Affairs announced that the share of Taiwan-made and OEM smartphones reached 37 percent worldwide, placing the island as the world’s leading manufacturer of smartphones. It is expected that Taiwan will continue to hold this top ranking into 2013, solidifying its position as the worldwide epicenter for makers of smartphones and other hand held devices. Taiwan’s domestic production is estimated to reach US$43 billion in 2015, bringing in new investment of US$678 million in 2015, and creating 150,000 job opportunities by 2020, reported the Commercial Times.
In the new age of tablet computing, Global Views monthly said, Taiwan is losing its edge in terms of component sourcing. This affects gross profit and reduces the influence of Taiwan’s electronics industry. Taiwan used to control this area, but now the ball is in Apple’s court.
In the past, Taiwan’s notebook ODMs like Quanta Computer, Compal Electronics Inc., and Wistron, enjoyed the ability to influence components ahead of global brand names such as HP and Dell. They could increase the importance of Taiwan’s component supply chain. But now Apple controls 70 percent of global tablet computing market, exerting more bargaining power and the ability to suggest components. Taiwanese companies are increasingly being relegated to mere assemblers of Apple products, rather than designers and innovators.
Of all the Taiwanese firms, only Foxconn maintained its previous share, accounting for 4.5 percent of the total component assembly for the iPhone 5, while other makers of touch screens and shells did not get any orders from Apple.
A senior product manager in Taiwan pointed out that Apple’s CEO Tim Cook, who took over the reins of the company following the death of Steve Jobs, is an expert on hardware specifications and a tough squeezer of supply chain production costs. As such, the iPhone 5 mainly focuses on upgrading and improving, the hardware, such as adopting the 4G LTE chip set module made by Qualcom and Retina screens made by Sharp. For those component providers, if they were lucky to get orders from Apple, it was at a reduced price, according to Global Views.
In fact, it is getting harder and harder to get orders from Apple. Starting from 2012, many Taiwanese electronics manufacturers, including some ODMs of Apple products, have turned to China for orders. According to Topology Research institute, the global total cell phone production volume, including traditional cell phones, is expected to grow 4.5 percent in 2013, in which the total volume for the Asia Pacific region including China is expected to grow up to 51 percent, far more than the 10 percent expected in North America.
Global Views reported that Foxconn, one of Apple’s main manufacturers, has long been taking orders from China’s brand name cell phones. For example, the company started assembling the “Happy phone” series of smartphones in 2011 for Lenovo, which started by making PCs and is now positioned to take some market share from HP. Foxconn also started this year to take orders of the popular MI-One, a smart mobile phone designed by Xiaomi Tech Company.
Besides Foxconn, TPK Holding (a manufacturer of touch panels) and Catcher Technology (a manufacturer of cell phone shells), and MediaTek Inc. (a fabless semiconductor design house) are all turning to China. These Taiwanese companies have formed new market links between Taiwan and China.
However, when Taiwanese companies apply their smart phone manufacturing technology to China’s brand name products, the advantage of Taiwan’s smart phone technology over China’s counterparts has also narrowed. The challenge now for Taiwanese companies is how to maintain the lead, Global Views stressed.
Now the only irreplaceable value of Taiwanese companies is the optical lens made by Largan Precision Co., in addition to the system assembly.
According to analysis by Business Weekly, the electronics industry was one of the key locomotive forces driving Taiwan’s economic growth, but now most of those related job opportunities have moved overseas leading Taiwan to shift its focus increasingly toward the service sector. More and more manufacturing resources are drawn to the service industry, namely, the so called high technization of services. Once the service industry is integrated with high technology, more innovation will develop.
At present, no one can predict exactly where the next big economic growth momentum will come from, but opportunities are certain to open up. One suggestion is for the government to continue to lift restrictions and let new businesses emerge. In either case, Taiwan still has the most treasured resource – manpower.
According to the global competitiveness report 2012-2013 released by the World Economic Forum in September, Taiwan remains in 13th position due to its sufficient manpower in R&D, its industrial clustering effects, and the low cost of its financial services. According to Business Weekly, Taiwan’s high quality manpower provides unlimited potential for the future.