Will Buffet invest in Hon Hai Rival

Earlier this year we reported on Hon Hai's struggle in Shenzhen (Hon Hai Fights in Shenzhen). The basic problem is a main competitor in China, BYD, has been sued by Hon Hai for stealing trade secrets. Delays in legal proceedings in the Chinese court system (which some speculate is aimed at protecting the Chinese company) has resulted in BYD gaining market traction.

BYD has now received a surprising vote of confidence from Warren Buffet who the Taiwan News reports is interested in 10% of BYD shares. According to Taiwan News:

Taiwanese entrepreneur Terry Gou might soon count U.S. investor Warren Buffett among his rivals, if the latter’s investment in a major Chinese company goes ahead, reports said.

Buffett, often mentioned in the past as the world’s wealthiest man behind former Microsoft chairman Bill Gates, is reportedly looking to buy 10 percent of shares in China’s BYD Co., Ltd., a major electronics and auto-parts manufacturer.

The Chinese company is currently involved in a court case pitting it against Foxconn, the brand name of Hon Hai Precision Industries. Foxconn sued BYD in 2006 for violation of trade secrets.

Chairman Terry Gou’s Hon Hai manufactures computers and cell phones for prominent brands such as Apple, Sony, Dell, Nokia and Motorola.

Hong Kong-listed BYD also counts Nokia and Motorola among its customers, and is believed to be those companies’ second biggest supplier behind Foxconn, reports said. The Chinese company is also the world’s second largest producer of rechargeable batteries. Engineer Wang Chuanfu founded BYD in Shenzhen 13 years ago.

Buffett’s reported investment in BYD is seen as a vote of confidence in the Chinese group and in China’s burgeoning technology sector, media reported.

Mr. Buffet is an admirable person. The little I know of him suggests he is a man of integrity and someone who can be admired for the way he conducts business. If he is interested in BYD and will indeed gain a 10% hold in the company, I certainly hope he will be able to have a positive influence on BYD management and urge them to consider fair competitive practices. Chinese tech companies do have a lot of potential but they will only succeed if they can learn to innovate on their own and not by copying.

I personally think Hon Hai has a sufficient competitive advantage to stay ahead of the pack and I do not think BYD will challenge their dominant position for a while yet. That said, BYD should still be willing to develop their own technologies and their own intellectual property and should not steal from others. As for Hon Hai, they must continue to innovate and lead by example. The further ahead they get, the stronger their position will be.

Taiwan News: U.S. W. Buffet and Taiwan Terry Gou likely to turn into rivals in China

MediaTek Upgrade Sales Forecast, Nanya Pessimistic

While The Telecom reports MediaTek is expected to have higher Q3 earnings based on strong demand from China, Bloomberg reports Nanya is expected to have a worse Q3 than expected. According to The Telecom:

Taiwan-based chip designer, MediaTek, today raised its estimate for third quarter sales growth to 22-25% because of high demand for handsets in emerging markets.

This is a significant jump from the previous estimated sales growth of 8-10%, with profit flatlining.

A statement released by the company said ‘better-than-expected’ mobile phone sales in emerging markets during July and August had caused its clients to increase September orders for cellphone chips.

Demand for mobile phones in China has been particularly strong, with 45% of the Chinese population now owning a mobile handset.

MediaTek is Taiwan’s biggest chip designer.

The company designs microchips for mobile handsets, DVD players, and digital televisions, then contracts out the manufacture of the chips to chip makers.

It is good new for MediaTek. However Taiwanese compatriat company Nanya is not doing so well. Bloomberg writes:

Nanya Technology Co., Taiwan's second-largest memory chipmaker, said its third-quarter loss will be worse than the company projected after a glut drove down semiconductor prices.

The loss will probably be similar to the deficit in the second quarter, Pai Pei-lin, vice president of the Taoyuan, Taiwan-based chipmaker, said in an interview today. Nanya, which posted a second-quarter loss of NT$7.29 billion ($226 million), is expected to report a third-quarter loss of NT$6.1 billion, according to the median analyst estimate compiled by Bloomberg.

The company will probably extend losses next quarter as the turmoil in global financial markets spills over to semiconductor demand, preventing chipmakers from selling their products at a profit, Pai said. Spot prices of the benchmark computer-memory chip have tumbled 35 percent in the past three months, according to DRAMeXchange Technology Inc. in Taipei.

Hopefully the memory industry can turn around soon. Companies there have been suffering for a longtime now.

The Telecom: MediaTek boosts Q3 sales projection
Bloomberg: Nanya Says Third-Quarter Loss to Be Worse Than Company Expected

Taiwan WiMAX Plan Joint Procurement

Its been a while since we last commented on Taiwan's burgeoning WiMAX industry. (See Wireless Taiwan and WiMAX Explosion in Taiwan) . Now, China Economic News (CENS) reports the six WiMAX license holders in Taiwan are considering joint procurements to drive down base station costs by as much as 50%. Some operators however have already installed Motorola base stations and will have to solve interoperability issues before being able to come on board.

CENS writes:

The six WiMAX service providers in Taiwan are mulling joint procurement of equipment in a bid to minimize costs, and will announce the decision next month.

The six providers—Vastart Cable TV Network Co., Ltd., First International Telecom Corp., Global Mobile Corp., Tatung InforComm, Far EasTon Telecom, VMAX Telecom—recently met to discuss the joint procurement of base-station equipment, with the majority supporting such idea for team procurement enables more advantageous bargaining power and volume discounts.

Vastar’s executives pointed out that a WiMAX base station, priced about NT$2 million (US$62,500 at US$1:NT$32), would sell for half as much under joint procurement. The six service providers plan to buy 15,000 base stations for over NT$30 billion (US$937 million), or for only half as much if bought jointly.

Global Mobile executives stated corporate backing of such proposal as joint procurement would pare costs.

VMAX executives noted that, despite joint procurement being a good idea, service providers have to overcome interoperability problems that may exist with the systems already installed.

First International Telecom executives pointed out, with Motorola base stations already bought, the company has to deal with potential problems with such equipment before taking part in the joint procurement.

Vastar executives said that the joint-procurement can be tried with the equipment planned for a selected city.

First, its good if the fixed costs can be driven down. It is even better if those savings can be distributed to the end users but that may be doubtful (although we can be hopeful). The base stations are a fixed cost. The marginal cost of using the network will be very small and therefore it is not clear whether the companies can offer any substantial savings on the WiMAX contract prices when they are launched. Maybe!

Secondly, there is a lot of wisdom in the joint procurement. WiMAX has not yet won the "standards war" and there are other competing wireless technologies out there. Which technology will eventually win is not certain yet. WiMAX has a good chance, but then again it is not always the superior technology that wins.

Finally, this is good for company shareholders of course. Lower costs mean more earnings can be distributed to the shareholders through dividends or higher-share prices. So ultimately, it is good to see these companies cooperating like this. It is an excellent illustration that not all strategy must be a win-lose scenario. Sometimes strategy can include a win-win alternative. Although in a joint procurement process the losers are the suppliers.

CENS: Taiwan WiMAX Operators Plan Joint Buying of Equipment

Is TSMC Falling Behind

EE Times reports Taiwan Semiconductor Manufacturing Corp. (TSMC) has announced their 32-nm and 28-nm processing rollout. However, EE Times notes the technologies being used at 32-nm is not as advanced as their rivals and observes the scaling technology being used by their rivals as sub 40-nm processing will only be implemented by TSMC on 28-nm chips. EE Times comments TSMC may be stalling for time and may have fallen behind in the development of the latest technologies. As EE Times notes, this will be the first time in a long time TSMC have fallen behind, if indeed they have.

According to EE Times:

Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) has rolled out its 28-nm process and revealed a surprise: It has pushed out--or delayed--its initial high-k/metal-gate offering until 28-nm, putting it slightly behind its rivals in Chartered, IBM and Samsung. TSMC was originally supposed to have its high-k/metal-gate offering at the 32-nm node.

Silicon foundry giant TSMC (Hsinchu, Taiwan) also provided details of its yet-to-be-introduced 32-nm process. The 32-nm process is a cost-down version of its 40-nm technology, while 28-nm is considered by TSMC as a ''full-node'' offering. As expected, both the 32- and 28-nm processes make use of 193-nm immersion lithography, copper-interconnects, ultra low-k dielectrics, strained-silicon and other features.

At 28-nm, TSMC plans to offer two separate options for the gate stack: conventional silicon oxynitride (SiON) and a newfangled high-k/metal-gate technology. It will offer two 28-nm versions with high-k and metal gates: a low-power and high-performance technology.

But at 32-nm, the company will only offer a SiON for the gate stack, which appears to be a change in direction for TSMC.

Earlier this year, TSMC CEO Rick Tsai vowed that the company would bring out its initial high-k/metal-gate technology at the 32-nm node. Now, TSMC's high-k/metal-gate offering has been pushed out to 28-nm. High-k and metal gates are key building blocks for scaling the critical gate stack, enabling the next-generation transistor.

TSMC declined to comment on the specifics of the technology. Perhaps the Taiwanese company is still developing high-k and is stalling for time. But in any case, TSMC is slightly behind its rivals for the first time in recent memory.

Of course TSMC have denied they are falling behind and suggest the strategy is a repositioning of their product. EE Times continues:

"I would not say we're behind" the competition, said John Wei, TSMC's senior director of the Advanced Technology Marketing Division.

"During the course of TSMC's advanced technology development, we concluded that we could now offer our customers a full-node 28-nm process with both high-k/metal-gate and silicon oxynitride at the same time as our competitor's 32-nm," Wei said.

"TSMC's 32-nm is re-positioned as a cost-down solution for customer 40-nm products and really does not need high-k/metal-gate," he said. "We are offering customer a choice at" 28-nm.

Despite their denials TSMC's main competitors have expressed surprised. In a second article EE Times says:

>

TSMC's foundry rivals are scratching their heads about the announcement. Gary Patton, vice president of IBM's Semiconductor Research and Development Center, raised questions here about TSMC's strategy to extend and scale SiON to 28 nm or even at 32 nm.

"I was confused about [TSMC's] announcement," Patton said. Even at 40 nm, silicon dioxide--or its SiON variant--for the logic gate stack "is running out of gas," Patton told EE Times.

TSMC's strategy to extend SiON is "a risky proposition," he said. The problem with SiON at 40 nm and below is "short channel control" and "VT variability," he said.

In contrast, IBM and its partners plan to offer what they claim is a better gate-stack solution at 32 nm. As previously reported, IBM, Chartered and Samsung plan to offer a high-k and metal-gate solution for 32 nm. The companies in IBM's "fab club" will not offer a SiON option at 32 nm and beyond, Patton said.

I am sure these companies are not writing off TSMC just yet. TSMC have proved themselves to be adept competitors in a very tough industry and are by far and away the leading pure-play foundry in the world. It will be interesting to see how this plays out over the coming months. Can TSMC maintain a competitive advantage at a lower processing technology with older processing methods, or will this be an opportunity for IBM, Chartered and other to gain traction in the market and eat up some of TSMC's market share. Only time will tell!

EE Times: TSMC pushes out high-k in 28-nm rollout
EE Times: IBM questions TSMC's 28-nm strategy

Half-terrabyte Notebooks from ACER

ACER has launched the industry's first notebooks with 500 GB of storage. Digital Home writes:

Still need more storage on your laptop? If so then you'll be happy to hear that Acer has begun begun shipping with the industry's first half-terabyte notebook hard drives.

The laptops feature Seagate's Momentus 5400.6 500GB hard drive which include G-Force Protection, a free-fall sensor technology that helps prevent drive damage and data loss upon impact if a laptop PC is dropped.

Seagate announced the new laptop drives in July along with their new flagship Barracuda 7200.11 1.5TB desktop hard drive,. Both types of drives provide significantly more storage space than previous laptop and notebook drives thanks to perpendicular magnetic recording (PMR) technology.

500 GB is a lot of space, probably more than most people will ever need unless you are into gaming, videos and photos.

Digital Home: Latest Acer notebooks offer half-terabyte of storage

IC Design House Doing Well

China Economic News (CENS) writes:

With an influx of orders from its Chinese, Japanese and Korean clients, the Taiwan-based Ili Technology (Iliteck), an IC (integrated circuit) designer, is very likely to challenge annual shipment of 120 million units of ICs this year, according to company sources.

Last year Ilitek shipped about 64 million ICs and scored sales revenue of NT$2.47 billion, sharply shooting up nearly 500% from NT$550 million posted in 2006, and shining EPS (earning per share) of NT$14.9. So far, Ilitek has shipped 65 million ICs over the first eight months of this year.

In fact, sluggish demand for consumer electronics in China this year has caused unit prices of ICs to drop and undermined Ilitek`s sales performance, as Ilitek saw its sales revenue slip month by month (NT$282 million in April, NT$158 million in May and NT$86 million in June) in the second quarter. Consequently, the company reported aggregate revenue of NT$1.13 billion for the first half of this year, growing only 17.1% from a year earlier, although having shipped 40 million ICs in the span.

Its great to see some design houses doing well in troubled times. What is also interesting is to see how the decreasing demand is pushing down prices. That said, Ilitek is still selling their products well.

CENS: Ilitek to Challenge Annual Shipment of 120 M. ICs This Year

Another Netbook from BenQ

The title says it all. Reuters writes:

Taiwan's BenQ, the branded unit of Qisda Corp, joined PC rivals to introduce smaller, low-cost notebooks carrying its own name on Thursday, and it aimed to grab a 5 percent share of the new market within two years.

Later Reuters has an interesting perspective on the future of the Netbook market:

Earlier this month, Acer, the world's No. 3 PC vendor, said it expects the global netbook market to reach 50 million units in 2009, and it aims to take 30 percent of that market by selling 15 million units of its own mini PCs. "For our new products, we hope we can have about five percent market share in one to two years," BenQ Corp Chief Executive Officer and President Conway Lee told reporters at a news conference, where BenQ displayed its "Joybook Lite" netbooks.

Lee did not give sales and shipment forecasts of its Joybook Lite PC, weighing about 1 kilo, and which has a 10-inch LED-backlit display and a sleek outer shell to attract design-conscious customers.

Only one comment here, I love the name: Joybook. Can you imagine the advertising jingle?

Happy happy joybook
Happy happy joybook
Happy happy joooooooooyyyyyyyyboook.....

Yeah yeah, I have gone back to my childhood roots.

Reuters: Taiwan's BenQ joins low-cost netbook PC market

HTC Continues to Grow

High Tech Computers (HTC), developer of mobile phones and smart phones, is one of Taiwan's amazing companies. If you have been sleeping under a rock, an HTC smart phone is the base for the Google Android smart phone.

The China Economic News (CENS) reported earlier this month HTC is doing incredibly well this year. According to CENS:

The Taiwan-based High Tech Computer Corp. (HTC), a world-caliber supplier of own-brand handsets, forecasts its annual revenue to smoothly hit a historical high of NT$150 billion for 2008, based on a strong revenue growth of over 30% realized in the past eight months of this year, according to Cheng Hui-ming, HTC`s chief financial executive.

Thanks to its hot-selling HTC series smartphones, HTC is expected to post aggregate revenue of NT$105.3 billion for the first three quarters of this year, and score revenue NT$48.8 billion in the fourth quarter, thus achieving annual revenue of about 154 billion for entire the year, sharply up from NT$118.6 billion posted last year.

In the meantime, the Wall Street Journal (WSJ) has an excellent article on the advent of the Smart Phone and the rise of new providers. The WSJ observes:

The U.S. market for smart phones continues to be a tough nut to crack for the established handset makers.

Top-tier players such as Nokia Corp., Motorola Inc. and Samsung Electronics Co. control 80% of the market for cellphones but have struggled in the U.S. to sell smart phones -- phones that allow users to surf the Internet, send email and download music, among other advanced functions.

Often caught up satisfying carrier demands, handset makers have been slow to bring out products in this segment, opening the door for the likes of Research in Motion Ltd. and Apple Inc.

This could prove a crucial error for the traditional players, as they cede the fastest-growing and most profitable slice of the market. "They're really missing out on a critical high-end segment," said Hugues De La Vergne, an analyst at Gartner Inc.

It could be painful for the large handset companies because their strategies are predicated on selling more-expensive high-end phones to complement sales of cheaper mass-market phones, propping up the companies' overall margins. But consumers are turning away from high-end feature phones, which offer one or two special functions, and opting instead for a full-blown smart phone.

Smart phones are where the growth is. More than 35 million smart phones are expected to sell in the U.S. this year, up 77% from a year ago, in a market worth $11.8 billion, according to Gartner. By 2012, the market will be worth $29.2 billion, with nearly 100 million units sold.

Later on, the WSJ comments on HTC saying:

It is no coincidence that Taiwan-based High Tech Computer Corp. has decided to start pushing its HTC name after years of making unbranded phones for the carriers -- its Touch Diamond is among the most highly anticipated devices.

HTC is working with Google Inc. to bring its first Android smart phone out, dubbed Dream.

The newer players can be more nimble and solely focus on the smart-phone market. But the handset makers aren't standing still. Both Motorola and Samsung vow to expand their smart-phone offerings in the second half and next year. "The iPhone has woken the entire industry up in a big way," Mr. Hurd said.

What happened here? It seems the traditional players didn't really keep taps on the market. They never anticipated new entrants (HTC), they never anticipated subsitute products (Smart Phones) and the buyer power was too strong (the carriers). Three of Porter's five forces went against them and they clearly didn't anticipate the impact of the smart phones on their business. There is a lesson here that companies really do need to keep their eye on the ball to see what new products and technologies are becoming available and how those technologies and products will affect their business.

Here in Taiwan HTC is a highly respected company and right now they are going from strength to strength.

CENS: HTC Eyes Record Revenue of NT$150 B. for 2008
WSJ: Smart Phones Challenge Firms

Slow Down in the Tech Industry

It had to happen eventually. The financial crisis in the States will effect every sector of the global economy. Some sectors will be more affected than others and some industries may take longer to feel the effects than others. The tech industry here in Taiwan is starting to feel the pinch.

EE Times notes:

Based on some key indicators from Taiwan's chip and PC houses, the signs in the IC industry are going from bad to worse.
ASE, Global Unichip, UMC and others posted lackluster sales figures for August. Taiwan PC assemblers Compal, Wistron and others reported mixed results in the channels.

But that's not what the doctor ordered amid a slump--and overall slowdown--in the IC sector. Recently, for example, Gartner Inc. lowered its IC forecast in 2008 and 2009.

In one indicator, Taiwan foundry provider United Microelectronics Corp. (UMC) reported net sales of NT$8.165 billion ($256 million) for the month of August, down 21.74 percent from a year ago and down 4.35 percent from July of 2008.

Taiwan chip-packaging giant Advanced Semiconductor Engineering Inc. (ASE) reported net revenues of NT$8.781 billion ($275.4 million) for August, up only 0.8 percent from July of 2008 but down 6.5 percent from a year ago.

Not all was doom-and-gloom in Taiwan. ASIC provider Global Unichip Corp. said its August revenues were up 7 pecent from July 2008 and up 37 percent over last year.

On the PC front, the signs are mixed among Taiwan's ODM giants, such as Quanta Computer. Quanta makes notebook PCs on an OEM basis for many PC makers.

"Sluggish corporate notebook PC markets in both North American and Europe negatively impacted Compal's shipments, offset by growing consumer notebook in Eastern European and emerging markets," said Daniel Amir, an analyst at Lazard Capital Markets, in a report.

"Despite weaker-than-expected European markets, Quanta maintains its full year 40 million notebook shipments guidance (26 percent increase over 2007), as the demand from emerging markets remains solid," Amir said.

"August shipments were flat or slightly up versus July. We forecast 10 percent growth month/month in September, following a 3 percent increase in August and 20 percent quarter/quarter growth both in 3Q and 4Q," he added.

Another Taiwan PC assembler, Wistron, "raised its 3Q shipments estimate to 5.8 million from 5.4 million, 25 percent quarter/quarter," he said. "Wistron is tracking ahead of the industry average, as it is gaining market share from other notebook ODMs."

Additional bad news for Taiwan Semiconductor Manufcaturing Corp. (TSMC) is that a few investment banks (aren't they extinct yet?) have downgraded forecasts for TSMC. Digitimes observes:

A number of investment banks, including Friedman Billings Ramsey (FBR), HSBC and Merrill Lynch, have issued a conservative guidance over the prospects for Taiwan Semiconductor Manufacturing Company (TSMC) in the fourth quarter of this year.

FBR expects an 8-10% sequential decline in TSMC shipments in the fourth quarter due to order cuts from a number of sectors, including games consoles, digital video equipment, STBs, DVDs, flat panels as well as Bluetooth chips.

TSMC is likely to see its shipments continue to decline 5-10% sequentially in the first quarter of 2009, FBR added.

HSBC expects TSMC's capacity utilization rate to fall to 75% in the fourth quarter and further decline to 65% in the first quarter of 2009 – the lowest level in recent years.

While forecasting TSMC's revenues are to drop 18-22% sequentially in the fourth quarter, Merrill Lynch also lowered its projection for TSMC's EPS (earnings per share) for 2008 from NT$4.11 to NT$3.68 and cut its target TSMC share price from NT$60 to NT$57.

Digitimes notes additional concerns in the IC sectory saying:

Due to the global economic downturn, consumer electronics, handset and notebook makers are more conservative about demand in the fourth quarter. With unclear order visibility, Taiwan IC distributors estimate fourth-quarter orders are to decline 10-20% compared with earlier expectations.

Despite low expectations for the third quarter, earlier some IC distributors were still optimistic about the outlook for the year-end holiday season and forecast sales growth of 20-30%.

Yeah. It had to happen and now it has. Nobody is immune!

EE Times: Taiwan IC, PC results point to slowdown
Digitimes: TSMC bracing for gloomy prospects in 4Q08, say investment banks
Digitimes: Taiwan IC distributors estimate orders down 10-20% on earlier expectations in 4Q08

Taiwanese Firms Investing in China

Here at Hi Tech Taipei I have long argued Taiwanese companies should be careful about migrating their latest technologies to China. President Ma Ying Jeou believes enabling companies to invest in China and specifically migrate their latest technologies to China will enable those companies to remain competitive. I am not so sure.

We noted objections to moving 45 nm fabs to China in Mr. Ma please don't move the fabs to China. We also argued in China Strategy for Fabless Chip Designers that design companies should be careful about partnering with Chinese companies because their intellectual property may be at risk. In Hon Hai Fights in Shenzhen we observed how Taiwan's largest contract manufacturer is struggling to maintain its intellectual property rights from marauding Chinese pirates. In the article quoted we observed how the Chinese legal system may be complicit in the piracy by not accelerating the case and enabling Hon Hai's competitor to gain traction in the market.

However, in No 10G AUO Plant in China we conceded any investment decision into China will be a business decision and not a political one and were also pleased to note both AU Optronics (AUO) and (in Fabs to Stay in Taiwan) the big Taiwanese foundries UMC and TSMC were going to stay invested in Taiwan.

To follow up Digitimes has posted an excellent commentary on the issue of Taiwanese firms investing in China. The beginning of the commentary is quoted below.

Since Taiwan's new president took office in May this year, the government has promised to relax various restrictions on its ties and exchanges with China. Taiwan's semiconductor and flat panel industries are now eagerly awaiting changes to the investment rules that have prevented companies from setting up operations involving advanced technologies in China.

President Ma Ying-jeou has on several occasions spelled out the principles for lifting the China-bound investment restrictions. First, after the restrictions are eased, Taiwan's IT industry can remain competitive globally, and its share of global market for IC and semiconductor will not be affected. Second, the advanced technologies developed by Taiwan players and their intellectual property must be well protected in China.

Signs in the market have indicated that an announcement from the government is expected in September.

The article is well worth the read. Follow the link below.

Digitimes: Taiwan and restrictions on China-bound investments

ASUSTek Sales Grow in Europe

Reuters reports ASUSTek sales in Europe will grow significantly this year. According to Reuters:

Taiwan's Asustek Computer, the world's top motherboard producer and a laptop PC maker, said on Wednesday sales of its own branded products in Europe would likely rise to $5-6 billion this year. Last year, sales of branded products in Europe totalled $3.8 billion, company officials said. "There will be growth in all our products," Eric Chen, Asustek's regional head of the European market, told reporters.

I guess the addition of the netbook to their product portfolio combined with growth in traditional sectors has helped add to their sales. It would be good to see a breakdown of their sector sales (both geographically and product wise) but I doubt they are letting that out. Anyway, it is good to see another Taiwanese company remaining competitive in the global market, even in these times of financial melt downs.

Reuters: Taiwan Asustek sees higher Europe sales, shipments

China to Push Design House Sales

Digitimes has an interesting report suggesting Chinese manufacturers are putting in early orders for chips because of ne incoming labor laws that will empower workers to decide whether or not to work overtime. Digitimes writes:

Thanks to new employment laws in China that empower employees to choose not to work overtime or else receive compensation at a higher rate, OEM/ODM IC orders are being brought forward to September, since makers hope to get the orders done in advance rather than wait for the peak holiday season, according to industry players.

The extra order momentum is expected to spur sequential sales growth for Taiwan IC design houses in September, challenging monthly records, and should prompt them to increase targets for the third quarter, the sources noted.

The sources identified MediaTek, Richtek Technology, Global Mixed-mode Technology (GMT), Global Unichip, Ralink Technology Corporation, Sitronix Technology, Orise Technology, Realtek Semiconductor, IC Plus (IC+) and ALi as companies whose sales are expected to hit record levels.

China is in constant flux and there laws seem to be constantly changing. At least for now this does seem to benefit Taiwanese companies over the short term.

Digitimes: IC design houses to see strong sales in 3Q08 thanks to China employment laws

64 GB Transcend Flash Drive Launched in India

I need to get one of these! Seriously! Its almost like carrying a hard drive in your pocket. 64 GB is a lot of space and in a flash drive format makes it very portable. Combine this with the Eee PC or some other netbook and you have ample storage space combined with extreme portability. Of course if you are into computers for other reasons (gaming, videos etc.) you will need a more powerful system. However, for an average computer Joe like me, this is sufficient.

Anyway, the 64GB flash drive was launched in India (since I was on furlough I probably missed the product announcement). Channel Times writes:

Transcend Information, a manufacturer of flash memory products, has announced the availability of its new 64GB JetFlash V20 USB flash drive in India. The V20 features pearlescent chassis with a semi-transparent color-band that lights up during use, the company said. Its storage space allows users to take back up, and store all essential files, music, digital photos and videos.

Austin Huang, regional head (Sales), SAARC & APAC, Transcend, said, "We are extremely delighted to announce the availability of the 64GB version of our JetFlash V20 flash drives in India. We are confident that our customers will appreciate the huge capacity available to them to store their precious data."

Channel Times: Transcend Unveils 64GB USB Flash Drive in India

Micron may Acquire Qimonda

Reports are surfacing that Micron, the largest U.S. maker of memory chips, may buy German competitor Qimonda AG. Digitimes writes:

One of the key drivers for the deal is the fact Micron will be able to leverage Qimonda's Inotera joint venture, which would add additional Taiwan facilities and IP revenue opportunities for Micron, in addition to its existing MeiYa joint venture with Nanya Technologies. Qimonda's fab assets are also more valuable to Micron, compared with other potential buyers, such as Hynix or Nanya, as their common geographies allow logistics synergy, Freedman noted.

Since Qimonda cannot fund projected losses through fiscal year 2009, Freedman expects that a deal could be done for US$350 million, near US$1 per share, or 25% of the US$4 per share book value. Freedman estimates an additional cost of about US$100 million would be required to convert Qimonda fabs to Micron processes.

Still, such a deal would would significantly reduce DRAM capacity investments in fiscal year 2009 for Micron, according to the note. Freedman calculated a US$500 million fiscal year 2009 capex for Micron's organic DRAM capacity.

Freedman concluded that the acquisition of Qimonda would position Micron as one of the two surviving memory leaders (along with Samsung) able to control supply and IP as the industry waits for long-term demand drivers to materialize, namely SSDs.

Well as we have noted before, the memory industry is in a very long-enduring slump. They haven't recovered from the excess capacity they generated when Windows Vista was launched and continue to struggle to leverage higher prices. Consolidation in the industry is therefore expected.

Digitimes: Micron-Qimonda deal likely to happen, says analyst

Is AMD Outsourcing?

The China Economic News (CENS) reports AMD has outsourced their 40nm CPU production to TSMC. According to CENS:

Some foreign institutional investors recently said Taiwan Semiconductor Manufacturing Co. (TSMC) has won foundry contracts to make central processing units (CPUs) for Advanced Micro Devices (AMD), the world`s No.2 computer-microprocessor supplier second only to Intel Inc.

They said the volume production would begin at the end of the second quarter next year and run with 40-nanometer process. The contracts, they added, would give a boost to the world`s No.1 silicon foundry`s revenue.

In reaction to the reports, TSMC`s executives haven`t made any comments, simply saying pursing CPU contracts has been one of the company`s plans. Industry watchers said the contracts coming in economic meltdown reflected TSMC`s unmatched technology and manufacturing service.

AMD`s farming contracts to TSMC has been within expectations of industry watchers expectations after AMD announced plans to spin off its manufacturing operation at the end of this year to focus on IC design. However, the contract-production schedule comes around half a year earlier than expected in light of the reported second-quarter 2009 production.

AMD has already contracted TSMC and United Microelectronics Corp. (UMC) to make graphic chips after merging ATI Technology, with TSMC offering manufacturing to newer chips whereas UMC offering service to its older chips.

Well, there was rumor from the new AMD CEO about their asset smart strategy and rumors have been going around for a while that AMD will be forced to get rid of their fabs (see AMD's Foundry Business). AMD has been in a brutal price war with Intel over the last few years and their purchase of ATI Graphics made it more difficult for them to move as they are heavily burdened with debt.

If they have entered into a partnership with TSMC then I think it will be win-win for both of them. AMD will be able to focus on designing competitive chips and will be able to offload their very expensive fabrication plants. Of course the news would be good for TSMC and would show further consolidation in the IC manufacturing industry. Remember last week we said Morris Chang predicted only three semiconductor manufacturing companies would be around in 10 years.

From a consumer perspective, a strong AMD is very important. AMD's superior product line a few years ago forced Intel's hand and made them develop better chips faster. It also reduced the overall processor prices and made computers cheaper. A semiconductor world without AMD would not be good. If outsourcing the manufacturing helps them to remain competitive in the design of chipsets and processors, then it is the right move for them.

CENS: TSMC Reportedly Wins AMD`s CPU Foundry Contracts

Hon Hai Denies Interest in Pegatron

Reports out of Taiwan suggest Hon Hai is interested in purchasing ASUSTek spin-off Pegatron. Digitimes wrote:

Foxconn Electronics (Hon Hai Precision Industry) is reportedly considering acquiring the operations of Pegatron Technology through a stock exchange, according to a Chinese-language Economic Daily News (EDN) report.

Asustek acknowledged that releasing Pegatron stock is one of the strategies adopted after the spin-off of its OEM arm, while Foxconn declined to comment regarding the speculation, according to the paper.

Several first-tier OEMs have been in negotiations with Asustek seeking to cooperate or acquire Pegatron since last year. Some market watchers believe Foxconn and Pegatron would be an excellent complement for each other, added the paper.

However, currently Hon Hai, the Foxconn parent company have denied the rumors.

Digitimes: Foxconn considering Pegatron acquisition, says paper

NY Times: Taiwanese electronics giants deny reported tie-up

GE and Tatung in Joint Venture

General Electric (GE) and Tatung, one of Taiwan's renown 3C companies, have entered into a joint venture to produce "innovative HDTV" i.e. high-definition TVs. AFP reports:

US conglomerate General Electric announced on Tuesday that it had entered into a joint venture with Taiwan's Tatung Co. to produce innovative high-definition television sets.

The joint venture, General Displays & Technologies (GDT), will "design, market and service GE-branded HDTVs" with the first sets hitting the market early next year, GE said in a statement.

GDT chief executive Marc McConnaughey said the new HDTVs would bring a step closer to the goal of merging the Internet and television experience without a personal computer.

"We are developing advanced, Internet capabilities for content delivery to televisions, without the need for a PC," he said.

"This includes Internet Protocol TV (IPTV) through cable, satellite and advanced fiber-optic television connectivity," McConnaughey said.

"The long-term strategy is to allow consumers to customize their viewing experience by downloading widgets and a variety of services directly to their HDTVs."

The JV is interesting and will I am sure leverage the strengths of both companies. the IPTV are certainly the next generation of TVs and the development of these devices and set top boxes has become more important in Taiwan over the previous year. See for example News from Computex: Notebooks and STB.

AFP: GE, Taiwan's Tatung team up on HDTVs

Back in Action, I Hope!!

Sorry for the lack of posts. I got a bit tired of keyboard bashing and studies have been occupying my time. Hopefully I will be able to post more regularly for the next few days.

I am sure you have all noticed the catastrophe in the financial sector. This will have a significant effect on hi-tech companies here, especially if the interest rates on loans increases. If companies are hoping to finance capital expenditures through debt, their interests costs will sky rocket.

Additionally, perception of a weakening economy, and growing liquidity concerns in the minds of consumers may have a downward impact on demand for luxury (hi-tech) products. This decrease in demand will definitely be felt right through the value chain from the retail stores, to the product manufacturers, to the component manufacturers to the chipset designers, fabs and raw material providers.

So the meltdown in the financial sector does have ramifications for everyone including us here in the hi-tech industry. Long term, well the way I see it is that people now and in the future will still want to by computers. The industry might undergo some consolidation with weaker players in each sector disappearing and stronger, bigger companies filling the gap.

Anyway, interesting times, interesting times......

Morris Chang Looks to the Future

Morris Chang, founder of Taiwan Semiconductor Manufacturing Corporation (TSMC) believes the future of the semiconductor industry, and speficially the manufacturing side of the industry is in the hands of three global giants: Intel, Samsung and TSMC. The Statesman commented on a speech by Morris Chang saying:

As Morris Chang looks to the future of the semiconductor industry, he sees technical and economic challenges that will strain chip makers' bankrolls and their intestinal fortitude.

In a decade or so, he expects to see only three companies still devoting major resources to pushing chip manufacturing technology dramatically forward.

The final three, he says, will be Intel Corp., the long-standing kingpin of the industry, South Korea's Samsung Electronics Co., the biggest maker of memory chips, and Taiwan Semiconductor Manufacturing Co.

The Statesman continues saying:

Chang believes the chip industry can gradually push ahead to the next two or three generations of advanced chip-making technology before really big challenges start to appear.

When that happens, the number of chip makers that will keep spending heavily on research will start to shrink.

The reason only three will remain is the prohibitive cost of the technologies and the plants. One plant costs in the region of US$5 billion. The Statesman wrote:

State-of-the-art chip factories now cost as much as $5 billion to build, and they require enormous production runs to operate efficiently. Fabless smaller companies would rather let TSMC take care of the chip manufacturing while they concentrate their efforts and their money on innovative design and aggressive marketing. And so would increasing numbers of large companies.

It is hard to see anyone else from capturing market share in the future from these three companies. AMD tried to compete with Intel and got hammered into the ground during an extensive price war over the past few years that has left the company teetering on the brink.

Digitimes recently reported that TSMC had "94% of all profits generated by four wafer foundries in Taiwan." According to Digitimes:

TSMC "revenues were up 25% on year to NT$170.8 billion (US$5.39 billion) in the first half, whereas net profits increased 28% on year to NT$56.9 billion during the same period.

United Microelectronics Corporation (UMC) saw its net profits decline 59% on year to NT$2.6 billion due to falling non-operating income, losses incurred from foreign exchange transactions and declining financial asset values, the company said.

That is not to say the fabless design model is without its threats and dangers. One recent analyst suggested companies like Nvidia may have to reavluate their relationship with TSMC as TSMC is unable to guarantee them production runs. EETimes comments:

Nvidia Corp. is not getting the 55-nm capacity it needs from silicon foundry giant Taiwan Semiconductor Manufacturing Co. (TSMC), a problem likely to worsen as the graphics chip maker moves to the 40-nm node, according to Doug Freedman, an analyst at American Technology Research.

In a report published Thursday (Sept. 11), Freedman wrote that the "fabless business model seems to be getting stressed out" and that the Nvidia-TSMC relationship "sounds problematic" and "needs to evolve."

In order to minimize its own risk, TSMC is building less capacity as it ramps new technology nodes, according to Freedman. TSMC doesn't get enough visibility from its smaller customers such as Xilinx Inc., Altera Corp. and Broadcom Corp., Freedman wrote, so the foundry cannot take the risk of building new capacity to support larger customers. Nvidia is TSMC's largest customer, he noted.

TSMC's board of directors last month approved a $795 million capital spending plan that includes a push into 45-/40-nm CMOS processes and MEMS.

Maintaining high capacity utilization and managing the risk of not receiving sufficient orders for maximum utilization rates is a delicate balancing act for TSMC. One which they will have to manage.

Maybe Morris Chang will be proved right, then again maybe not. We will have to wait and see in 2018 who is still around.

The Statesman: A chip prediction: In the end, three will dominate R&D
Digitimes: TSMC tops Taiwan wafer foundries in revenues and profits in 1H08

10,000 is an ever distant dream!

A few people have commented on how Ma Ying-jeou had promised to lift the ailing stock market here in Taiwan to above NTD10,000. Yesterday it closed dismally at a memorable 6,699, a two year low. Everything is getting hammered. Amongst the stocks I watch the fabless design houses are taking the biggest hit. At the time of writing, 13 of the 15 fabless design houses I monitor saw greater than 6.5% declines in there share prices.

Commenting on yesterdays dismal declines and today's earlier performance, Forbes said:

Share prices closed at near two-year low as technology firms remained weak on fears of a demand slowdown and following Hon Hai Precision Industry's disappointing first-half earnings.

The tourism sector also lost further ground as the anticipated post-Olympics flood of tourists from mainland China has yet to materialize.

A big drop in oil prices provided some relief to investors, but it proved insufficient to offset ongoing worries about the global economy.

Weak showing on major Asian markets also kept trade cautious.

The weighted index closed down 113.27 points or 1.66 pct at 6,699.82, the lowest level since 6,681.09 registered on Sept 15, 2006.

The index today moved in the 6,675.09 to 6,811.57 range. Turnover was 92.15 bln twd.

It got uglier by the close. The index closed at 6,584.93, a 1.71% drop from yesterday. I guess there is no escaping the doom and gloom around the world. Yesterday the Dow Jones ended down 0.23% and the NASDAQ down 0.77%. The Hang Seng at the time of writing was also down 1.83%.

I don't think Mr. Ma can do anything about it right now. Investors are running scared. The global economy is apparently in a downswing and Taiwan will not be immune. But Mr. Ma did promise didn't he?

Forbes: Taipei shares close at near 2-yr low; techs remain weak on demand worries

Taiwan Continues to Dominate Notebook Manufacturing

The China Economic News (CENS) observes Taiwan companies provide over 90% of the world's notebook computers. CENS writes:

Taiwan`s notebook PC manufacturing sector supplied over 90%, or 25.33 million units, of notebook PCs sold in the world in the second quarter of this year, up 4.5% from a quarter earlier and 42% from a year earlier, according to statistics compiled by IDC (International Data Corp.)

In the second quarter, the sector also generated production value of NT$14.81 billion, up 38.5% from a year earlier, with Quanta Computer Inc., Compal Electronics Inc., Wistron Corp., Inventec Corp. and Pegatron Corp. as top five companies in the line.

IDC noted that Intel`s decision to postpone launch of its newest platform Centrino 2 and inflation crunch in some countries of the world caused consumer demand for notebook PCs to languish in the second quarter. Consequently, Taiwanese notebook PC makers` shipment performance was lower than expected by market observers.

What is astounding is the 42% year-on-year growth. Although the quarterly growth was a marginal 4.5% growth, the yearly growth is amazing considering the current state of the global economy.

China Economic News: Taiwan Supplies Over 90% of Global NB PCs Sales in Q2

Quanta to Make Own Branded Products

Digitimes reports:

First-tier notebook maker Quanta Computer is planning to head toward promoting own-brand products by expanding into branded wireless Internet applications, which Barry Lam, chairman of Quanta, stressed will not impact its OEM notebook business.

The new products will be based on expanding MID (Mobile Internet Device) designs with even stronger mobile communication abilities. The company already has samples in testing with clients and expects the new product line to start boosting revenues in 2009, noted Tim Li, VP and CFO of the company.

Quanta are the worlds leading contract notebook manufacturer. All their customers have their own branded products. They make notebooks for companies like Dell and I suppose Lenovo and others. They therefore should be very careful about what products they stick their own brand on. Right now it doesn't seem to be notebooks.

One of the biggest fears of overseas contracting to companies in Taiwan is that the companies will rework the models and sell them under a different brand name. Quanta developing their own branded products may scare off some customers.

However, the real value in the value chain does not come from manufacturing but from things such as brand premium. It is this lucrative sector of the value chain Quanta hope to penetrate.

Digitimes: Quanta is focusing on develop own-brand non-notebook products

UMC To Buy Back Shares

UMC are planning to buy back 200 million shares between now and October. This follows TSMC's plan to buy back shares and recent insider trading accusations against a UMC executive. Trading Markets writes:

United Microelectronics Corp (UMC) (2303.TW) said it bought back 25.41 mln shares, or a 0.19 pct stake, at an average price of 13.13 twd per share from Aug 28 until today.

The repurchase was part of the wafer foundry's plan to buy back 200 mln of the company's common shares from the open market in the period from Aug 28 to Oct 27.

The 200 mln shares, to be bought at prices ranging from 9.31 twd to 21.05 twd, would represent 1.51 pct stake in the world's second-largest contract chipmaker.

This is one way for the company to return money to shareholders and also another way to keep their shares competitive. Right now UMC shares (2303.TW) are trading for NTD12.85 per share and are 36.23% down on the year so far.

Trading Markets: Taiwan's UMC buys back 25.41 mln shares at avg 13.13 twd

Stocks Crash Again

Stocks crashed today. The Taiwan Index was down to 6,813.09, a 3.31% drop. The tech sector stocks were also hammered. See the table below. Hurricane Gustave has pushed up the price of oil which no doubt has had an effect on the share prices. Also a 1.47% decrease on the Dow Jones index and a 1.73% decrease on the NASDAQ index also contributed to pushing the prices down. The Associated Press (AP) reported the Fridays declines were due to disappointing personal incomes and bad performance by Dell.

Of the stocks listed below, 24 declined by more than 6%. Considering the limit down in Taiwan is 7%, that is quite a chunk.

2330.TW	TSMC	-3.905%
2317.TW	Hon Hai	-6.875%
2409.TW	AUO	-4.993%
2498.TW	HTC	-4.061%
2357.TW	Asustek	-4.925%
2454.TW	MediaTek	-3.956%
3481.TW	InnoLux	-6.923%
3009.TW	Chi Mei	-4.486%
2303.TW	UMC	-1.880%
2354.TW	Foxconn	-6.984%
2325.TW	SPIL	-6.743%
2353.TW	Acer	-6.929%
2311.TW	ASE	-6.061%
2324.TW	Compal	-6.842%
2301.TW	Lite-On	-3.045%
2347.TW	Synnex	-6.169%
2371.TW	Tatung	-4.310%
2382.TW	Quanta	-6.590%
6116.TW	HannStar	-4.671%
2475.TW	Chunghwa	-4.970%
2408.TW	Nanya	-6.542%
3231.TW	Wistron	-6.196%
2356.TW	Inventec	-4.021%
3034.TW	Novatek	-5.556%
2379.TW	Realtek	-2.946%
6239.TW	Powertech	-6.970%
2337.TW	Macronix	-1.186%
6286.TW	Richtek	-6.844%
2323.TW	CMC	-5.603%
2352.TW	Qisda	-6.854%
2315.TW	Mitac	-3.361%
2362.TW	Clevo	-3.064%
3474.TW	Inotera	-6.939%
3702.TW	WPG	-2.624%
2332.TW	D-Link	-5.997%
2342.TW	Mosel	-4.854%
2395.TW	Advantech	-3.217%
2385.TW	Chicony	-3.509%
2344.TW	Winbond	-6.993%
2349.TW	Ritek	-3.226%
2449.TW	King Yuan	-3.226%
2388.TW	VIA	-6.849%
2377.TW	Micro-Star	-6.787%
2441.TW	Greatek	-3.682%
2485.TW	Zinwell	-5.000%
3189.TW	Kinsus	-6.852%
2458.TW	Elan	-5.263%
3035.TW	Faraday	-6.972%
2451.TW	Transcend	0.962%
3062.TW	Cybertan	-6.911%
8078.TW	Compal	-3.678%
2401.TW	Sunplus	-5.357%
3443.TW	Global	-5.774%
2391.TW	Zyxel	-7.692%
3041.TW	Ali	-6.904%
2331.TW	Elitegroup	-4.933%
8131.TW	Formosa Advanced	-5.369%
8008.TW	Lite-On IT	-6.735%