Taiwan's 2012 GDP Growth Forecast Lowered

The Taipei Times reports that the The Directorate-General of Budget, Accounting and Statistics (DGBAS) has lowered the forecast for GDP growth from 3.38% to 3.03%. The reason for this is lower exports in H1 this year. As per the article, "Moody’s Analytics said electronics were the economy’s weak link." The article continues:

It was the sixth straight time DGBAS has revised downward its forecast for this year’s GDP growth since August last year, when the agency forecast a 4.58 percent growth rate for this year.

“Exports fell more than expected in the first half of the year, which is the major factor making us revise downward our full-year economic growth forecast,” DGBAS section chief Joshua Gau (高志祥) told a press conference.

Exports dropped 4 percent in the first quarter from a year earlier, a phenomenon rarely seen, Gau said.

Previous drops in quarterly exports only happened during the Asian financial crisis that began in 1997, the dot-com bubble in 2000 and the global financial crisis that began in 2008.

Full-year exports are expected to grow 2.69 percent to US$316.5 billion this year, with exports in the second quarter continuing to post a 2.55 percent year-on-year decline, DGBAS statistics showed.

This is not totally unexpected. There is hope that exports will recover in H2 this year but my personal opinion is that most of the drivers of growth for Taiwanese exports are beyond the influence of the government. The global economy is weakening: the ongoing fiasco in Europe and the slow down in China's economic growth all point to a tougher global market place in which to sell electronics. Of course the government is still hopeful that growth can (and will be) achieved, but I don't think there is going to be any drastic upward adjustments in the global economy for a while to come. The Greek/Europe fiasco (despite what people are saying) needs to play itself out: will Greece stay in the Euro or not, and since it seems increasingly likely that they will leave, the impact of a Greek exit from the Euro needs to be fully absorbed. What then happens to Spain, Ireland, Portugal and Italy? The global economy is in for a long haul!  Further downward adjustments in the GDP forecast for 2012 wouldn't be completely unexpected.

The "democratization of commerce."

A friend just sent me a link to an interesting article on TechCrunch, where a Mr. Chi-Hua Chien argues "We’re now entering an era around the democratization of commerce." According to Mr. Chien "Technology has helped to level the playing field across a wide range of industries, letting more individuals come to the table in fields such as publishing, entertainment and, of course, building web startups" and of course he suggests the next industry sector ripe for "democratization" is the world of commerce. His argument is that "companies such as Safeway and Wal-Mart rising to the top of the commerce space by simply being the best at aggregating a suite of products into one space." However, Mr. Chien suggested that there will be "'an unwinding of aggregation of commerce as technology starts to disrupt' the industry."

Morris Chang Wants Consistent FX Policy

Morris Chang is asking the Taiwan Government to develop a consistent fx policy as the strengthening of the NTD against the USD is leading to decreased profits for Taiwanese companies. Since Taiwanese companies are largely export oriented and receive payments in USD, any appreciation in the NTD against the USD will severely affed the bottom line of many export oriented companies in Taiwan. Chang explains

iPad Shipments and the Amazon Tablet

Digitimes is reporting that "Foxconn is expected to ship 20 million units of iPad 2 to Apple, a growth of 60% sequentially, and the orders should be the major growth driver for the company in the second half." This is a significant increase for Foxconn. However, in the meantime, Digitimes also reports that Amazon is about to release their own Tablet computer. As per Digitimes:

Google Purchase of Motorola

Google recently purchased Motorola Mobility for about US$12.5 billion (a staggering amount). However, some people are no seeing not only does Google benefit from the thousands of patents (nearly 17,000 as I recall) that Motorola has, but also see significant tax benefits to Google as Motorola continues to report a net operating loss on the income statement. As per a Reauters report:

By agreeing on August 15 to pay $12.5 billion in cash for struggling Motorola Mobility's vast portfolio of 17,000 patents and 7,500 pending patent applications on top of its handset business and television set-top boxes, Google is building a defensive bulwark for its Android phone software, already available on Motorola phones among others.

The acquisition, Google's largest ever, has legal tax and accounting benefits, many associated with the money Motorola Mobility has lost over the years, according to experts who have studied its details.

"The tax benefits of the deal make what was a good deal into a great deal," said Robert Willens, a New York accounting and tax expert. He estimated that through the acquisition, Google can expect to reap $700 million a year in tax deductions from future profits each year through 2019. Google also will be able to immediately reduce its taxes by $1 billion due to Motorola Mobility's U.S. net operating loss, and by a further $700 million due to its foreign operating loss, he said.

However, while some see the patent-purchase as being a good thing, others see the patents as "crap." (See report:

Google says it bought Motorola mainly for its patents. But according to one analyst, those patents are "crap" and won't help Google very much in its patent battles over Android..

The future for smartphones in the US is certainly getting more interesting.

Strategic Shifts in Taiwan's Tech Industry

A recent article on Business Week highlights that while the tech industry in Taiwan is still doing well with increased demands from China, many of the major companies such as TSMC are getting ready to change their strategies and are starting to diversify into higher margin products. Business Week says:

TSMC is stuck in a maturing industry, and its primary business of making chips for other companies is likely to grow just 8% annually in coming years. So Chang wants to boost TSMC's presence in solar power and light-emitting diodes (LEDs). The two have technological overlap with chip production, but they offer far better margins and more potential. "They are going to be fast-growth industries," Chang says.

Executives across Taiwan's tech industry are making similar strategic shifts. Shi-Wei Sun, chief at chipmaker United Microelectronics (UMC), in August launched a division focusing on solar and LEDs. Peter Chou, CEO of smartphone maker HTC, is reducing his company's reliance on Microsoft Windows-based handsets, adding more phones using Google's Android operating system. And Au Optronics (AUO) is plotting a move beyond its traditional LCD displays, which require investments of billions of dollars every few years for companies to stay ahead of rivals. "Coming out of the recession, AUO is a completely different company," says C.T. Liu, chief of AUO's consumer display business. First up, he says, will be e-readers and electronic paper, newfangled displays that can be rolled or folded. Both technologies will let AUO capitalize on its display-making expertise.

The article also highlights how recent developments in relationships between China and Taiwan have been good for Taiwan's tech industry and argues that this integration will continue to stimulate on-island growth. Later the article also describes how Simon Lin, Wistron head, intends to diversify into the PC recycling industry and how he is trying to equipe his company for the post-PC era.

None of this is surprising. I remember reading at least five years ago of how Taiwan's chip giants were looking to moving into manufacturing solar cells and these kinds of stories have been in the news for a while. The real challenge for these companies is to develop the right strategies going forward. As the article rightly states, Taiwanese companies are very strong competitors in low-margin industries as they are, within their culture, very concious of cost. A friend once emphasized the Chinese are a frugal race and know how to save money and reduce expenses. Competing in a race to the bottom in terms of cost is something they know how to do very well.

However, high-margin industries may demand different cost structures that they are not willing to adopt. A conversation I once had with an executive working at a large Taiwanese Mobile phone company said that when he talks to his managers about cost, they struggle to understand the difference between cost-competitive and cost-down strategies and whenever an issue of cost comes up, they just cost down all the time.

So to my mind this would be one of the biggest challenges for the businesses in Taiwan. It is not so much that the executives don't understand this. Rather inculcating these ideas into the nuts and bolts managers will be imperative for the companies to become world class in high-margin industries.

This problem is particularly highlighted in many Taiwanese companies that want to become global brands but refuse to spend the money on the right marketing people that can guide the strategic direction of the products and search for opportunities in nascent markets and spaces.

So well the immediate futrure for Taiwanese companies is seemingly secure, as the PC industry fades and these companies transition into other areas, there will have to be fundamental shifts in strategic thinking throughout organizations and indeed, possibly a large part of the on-island tech industry.

Business Week: Taiwan's New Tech Dreams

The Innovator's Dilemma - Book Review

A friend recommended this book to me a few months back. I read it then but after the recent discussion about Dell, Acer and the netbook market decided to read it again. I also posted a review on Amazon.

The Innovator's Dilemma is a unique approach to understanding corporate failure. Christiansen's thesis is that well managed companies with all the best processes in place do fail. The failure is not due to inefficiency, bad management or bad processes but due to companies being responsible in terms of listening to their customers, investing in technologies that their customers' demand and rationally allocating resources to high-margin products. Christiansen argues that these investments are made on sustaining technologies as opposed to disruptive technologies. He reason's established sector leaders do this because the initial market for disruptive technologies is too small to justify the investment and sustain corporate growth. This provides new entrants with time and space to establish themselves in the emerging market and that when the performance of the disruptive technology intersects the needs placed on the traditional technologies in an industry, these disruptive technologies will start to take over from the traditional sector leaders. [Read Full Review]

I feel this book speaks directly to what is happening in the netbook market. Once again, this is not a prediction of the demise of Dell but netbooks are changing the way people percieve and view computers. The growth of this sector has obviously grown due to the economic crisis due to the low price of these devices but I still cannot help feeling that by not investing in these products, they are missing something. I may be wrong but this book (even the introduction) is a mirror of the current situation in this market and also surprisingly the rise of ARM processors.

So anyway rather than reading the review read the book and let me know what you think. It will be interesting.