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.

Are PC Shipment Volumes Meaningful

Yesterday we wrote that Acer had taken the number 2 spot in terms of volume for PC shipments in Q3 this year (Acer Rises to No. 2 in Q3 2009 ). Tony Bradley comments on this data over at PC World:

The third quarter sales figures brought great news for the PC industry-- sales are up! Following declines in the first and second quarters, global sales of PC's are up 2 percent for the third quarter, seemingly signaling a light at the end of the recession and IT spending glut tunnel. However, the news isn't all good.

See, here's the thing about statistics and numbers: they say what you want them to say. Good news can be extracted by focusing on the total number of actual devices that were bought and sold during the quarter. However, that statistic does not tell the whole story.

Bradley's perspective is that the shipments are not a significant indicator of the health of the company or the industry. His thesis is that absolute volumes are not as important as say revenue or overall profit and that while the small marginal increase in sales and the growth of Acer is not unimportant. There are other issues that need to be addressed. When speaking about Dell, he quotes Michael Dell who said "If we [Dell] wanted [market share], we'd go and sell a whole bunch of netbooks." The point being that Dell are focusing on long term revenue growth, profitability and not looking at incremental market share as it changes each quarter (quarterly myopia is an obsession and has played its part in the economic downturn).

When reading his article a couple of things sprang to mind.

First, while I do agree with Bradly that it is good for companies to focus on "long-term strategy and profit" it is unfair to say (or imply) that Acer or the Taiwanese companies aren't doing that. Of course they are. Getting into the netbook game was a long term strategy for both Acer and Asus and right now they are reaping the rewards of their planning and the advantage they are gaining from their strategic foresight when they launched the netbooks a few years ago.

Second, what is is Dell's long term strategy? No doubt they have some plans but as we have commented here before some industry observers believe Dell's business model is struggling to survive . Admittedly I haven't kept up and a lot might have changed since 2008 when the article was first published, but still, have they managed to realign the organization and their entire business model to be able to drive growth?

Third, what about the share prices? YTD Acer's shares have climbed from NTD40 per share to NTD80 per share (that is a %100 climb) whereas Dell has gone from US$10.54 to US$15.43. Certainly Acer is seeing the reward for their growth strategies (and to think I was thinking of buying Acer at NTD25 way back when, DAMN!)

Fourth, netbooks are a disruptive technology. Both Acer and Asus are aware of this. In "The Innovator's Dilemma" Clayton Christensen has highlighted the way disruptive technologies can bring down market leaders very quickly if they do not invest in these technologies. Yes, right now Dell does have very strong relationships with businesses around the world, but when the push comes to the shove and the netbook computers are increasingly adopted by businesses accross the board, Dell won't be in the game.

To stress, I am not here suggesting that Dell will fail. The world of business is too uncertain for such radical proclamations. The point here is this: Dell can carry on running along the lines they are going but right now technology is moving towards flexible, mobile devices that can be easily moved around and connected anywhere. I dare suggest that although sitting and doing nothing may be a long term strategy, innovation right through the value chain, gaining new market share, and becoming dominant in new market spaces is a valuable long term strategy that will reap reawards later. The experience curve suggests that as Acer, Asus and the others continue to grow in the netbook space, their cost structures will decline and when and if Dell do decide to enter the market space, they will be blown away.

PC WORLD: PC Shipments on the Rise, But at What Cost?

Acer Rises to No. 2 in Q3 2009

In Acer Climbing to No. 2 we noted that IDC reported Acer was the second largest PC distributor behind HP with a market share of 18.5%. Today Reuters reports Acer has surpassed Dell in Q3 2009 as well. Reuters says:

Taiwan's Acer Inc (2353.TW) surpassed Dell Inc (DELL.O) to become the world's No. 2 PC maker in the third quarter as worldwide industry sales proved surprisingly strong, spurring hopes that demand is rebounding.

According to Reuters Acer now has a PC market share of 14% while HP leads with a market share of 20.2% and Dell at 8.4%. Are Dell in trouble? ASUS and Lenovo will be fighting for more market share and both those companies may start to attack Dell's position in the market. Only time will tell.

Reuters: Acer passes Dell as global PC shipments rise

Netbook Chip Demand Rises

An excellent article on The Street argues that while Intel are still dominant players in both the traditional PC/Notebook space and the netbook space, they are being challenged in both the notebook and netbook space. According to Robert Castellano at The Street:

....the Atom is propping up Intel's unit shipments in the mobile PC sector. It's (Intel) making little or no money on the Atom anyway. A more important issue is that it (Intel) may be losing market share in the notebook market. Why? Because Intel had to fill orders for netbooks in the fourth quarter of 2008 and the first quarter of 2009 and made Atoms instead of Penryns, resulting in lower margins on a $29 CPU. Once PC OEMs migrated to the AMD CPU, they stayed with it.

I've also forecast previously that while Intel's Atom will hold more than an 80% share of the 23.5-million netbooks sold in 2009, a movement is underway that will enable the processor from ARM Holdings (ARMH Quote) to gain a 55% market share in 2012.

What I find astonishing (not unbelievable mind you) is Castenallo's prediction that ARM processors will have a 55% market share of the netbook space in 2012. This would be a drastic inversion of the market share for both companies. I am assuming Castenello is making this assumption based on his knowledge of both the Intel and ARM roadmap (as far as he can see it anyway) and so this inversion must be troubling for Intel. Certainly ARM has been pressing them in the mobile phone space for many years and this does indeed seem to be the natural progression for them. It would be interesting to see if ARM in the future plans to move further along the product train and try (at some point) to compete with Intel in the notebook space.

In related news Electronics Weekly reports that ARM-based netbook chip orders are set to max out the 65 nm and 55 nm processing plants at both TSMC and UMC. According to Electronics Weekly:

According to the Commercial Times of Taiwan, both TSMC and UMC will be at 100% capacity utilisation for 65nm and 55nm processes by November, because of a flood of orders placed on them for ARM-based Netbook chips.

The orders are coming from Qualcomm, Texas Instruments, Freescale Semiconductor Via Technologies and Nvidia.

Freescale says it has three Netbook design-ins expected to go into production before the end of this year, while Qualcomm says it has half a dozen design-ins. If TI, Via and Nvidia have three or four each, then there could be 20 ARM-based Netbooks on sale before Christmas.

Both Paul Jacobs, CEO of Qualcomm and Rich Beyer, CEO of Freescale, point out that the new metric for measuring computing performance is going to be power efficiency rather than CPU speed. This massively favours ARM which has always designed for power efficiency as against Intel which has always designed for speed.

The Electronics Weekly article sheds further light on the growth of ARM chips on netbooks. Of course there is less visibility into the production of Atom chips as (although some of it apparently is being done at TSMC) most of it would still be in house anyway. ARM chips do seem to be making a big bang on the netbook stage and one wonders just how Intel are going to compete in the long term. Remember Intel are used to competing as the dominant market leader and not as one among equals so it will be interesting to see if they have the ability to alter their strategic approach to remain dominant and also to see if they adjust their business model to compete against ARM. One thing is for sure, many people around the world would prefer a weaker Intel.

Electronics Weekly: Netbook Chip-Set Orders To Max Out Capacity At TSMC & UMC
The Street: Intel's Grip on Notebooks, Netbooks Slips

IT Industry not Affected by Typhoon Morakot

More reports are floating in from the South of Taiwan of serious loss of life and damage to property. The BBC reports 'Hundreds lost' in Taiwan typhoon due to severe typhoon induced mudslides. Despite the massive loss of life and damage to property, Digitimes reports the IT industry has remained largely unaffected by the typhoon. Digitimes reports:

Taiwan's electronics industries appear to have seen limited affects from Typhoon Morakot which brought heavy rains over the weekend and caused seriously flooding in many areas in the southern and eastern parts of the island.

Many companies have already reported via filings with the Taiwan Stock Exchanged that their operations and businesses have seen little or no impact from Morakot.

Typhoons always are always dangerous and this one seems to be particularly dangerous. Hi Tech Taipei mourns with all Taiwanese people and with the families and friends of those lost and missing. Lets hope survivors can be found.

Digitimes: Taiwan IT industry not affected by typhoon flooding

TSMC vs. Global Foundries - Let the War Begin

Just caught up with an August 3 article on TG Daily where Morris Chang compares himself (oddly enough) to Joseph Stalin! Seriously. Ah well, its all related to the ground breaking of the new Global Foundries Fab (GF) in New York and the signing of ST Micro as a customer. According to TG Daily:

San Francisco (CA) - The Chairman of Taiwan Semiconductor Manufacturing (TSMC) recently told reporters that he expected to triumph in a protracted and bloody war with GlobalFoundries. The septuagenarian compared himself to Stalin.

"We consider GlobalFoundries to be a formidable competitor," said Morris Chang, who was quoted by PC World. "I really think the battle will be a high casualty one. My job is to minimize the casualties on my side."

According to Chang, the construction of GF's 4.2 billion Fab 2 chip factory in upstate NY indicated a strategy of "total" committment. The opinionated Chang also compared GF's strategy to German attempts to hold the line at Stalingrad after being surrounded by Russian troops.

"Like Stalin, I have no doubt of the outcome," boasted General Chang.

GlobalFoundries spokesperson Jon Carvill responded to Chang's questionable analogy by reiterating GF's "total" commitment to fair competition.

"The groundbreaking in NY and the announcement of our newest customer, STMicro, were huge milestone for us and represents a long-term commitment to delivering the world's most advanced technologies in high-volume to the market," Carvill told TG Daily.

However, Carvill did concede that TSMC was a "strong" and "well established leader" in the foundry industry.

"We look forward to competing with them and offering a true alternative for those companies looking for the world's most advanced technology and manufacturing capabilitities," added Carvill.

Well well, we have talked about GF a bit in the past (see Global Foundries Challenges TSMC and Globalfoundries Getting in on the Game).

This fight will be an interesting one and one that TSMC has not really had in the past. They have dominated the foundry industry for a long time and have been the clear leaders. Although there are other competitors, it would seem that TSMC are way in the lead. This might be a bruising battle and one which the GF execs have had a lot of experience with. After all, they did challenge Intel (and lost a brutal price war) and now they are challenging the behemoth in the foundry industry.

Of course, GF does not have the experience in the pure play foundry industry and while they may have the manufacturing expertise (and a lot of money), and while the industries are related, they will still have to climb the curve. There is no escape. Their advantage (I would imagine) would be that many of TSMCs customers would love to reduce the supplier power that TSMC currently has in the market and for this reason alone, may outsource some of their production to GF. However, although TSMC does stand to lose a lot, I think the bigger fallout will come for the other (smaller players) in the foundry industry.

Time will tell but I still think Chang's Stalin analogy is odd! Why didn't he use Churchill?

TG Daily: "Intel's" TSMC declares war on "AMD's" Globalfoundries

Semiconductor CAPEX Down - TSMC Capex Increases

The number of semiconductor companies spending more the one billion US dollars in 2009 on capital expenditures (CAPEX) has declined from eight in 2008 to just three in 2009. Fabtech cites an IC Insights reports. According to Fabtech:

The elite of the elite as far as semiconductor capital spending is concerned are in desperate need of new members, otherwise the ‘Billion-Dollar Club’ is in danger of closing its doors. According to IC Insights, only three companies, Intel, Samsung, and TSMC, are planning CapEx of over US$1.0 billion in 2009, down from eight companies in that club in 2008, and 16 companies in 2007.

Intel still sits at the head of the table with spending plans of US$4.7 billion, Samsung with US$4.5 billion and TSMC with its revised upward plans for US$2.3 billion spending in 2009. Compared to spending in 2008, Intel is spending 10% less, Samsung by as much as 33% less and TSMC is the only one increasing spending by 23%.

Capital spending as a percent of semiconductor sales will barely top 12% in 2009. Considering that it reached a record low of 16% in 2008, there is little joy for equipment suppliers.

However, the good news is that IC Insights believes this will lead to much stronger IC average selling prices (ASPs) beginning in 2010 and extending through 2012. Thus generating the profit margins required for greater capital spending.

Fabtech gets it right when it says this provides serious issues for equipment suppliers but this is nothing new and they were probably expecting the decline. Last year in August in Chip Manufacturing Orders Down we quoted a CNET article that anitcipated this decline. So really it is nothing new or surprising. Most companies have struggled in the past year and planning expensive capital projects is difficult to do when orders are not coming in. One would imagine it would take a longer period of time for these equipmenet manufacturers to recover. I assume the manufacturing companies will first need to develop a solid forecast of future sales before they start to invest.

There are some encouraging signs though. Earlier in the week we saw PC Demand is Climbing and other reports out of Taiwan suggest some parts of the chip design sector are in recovery mode with EDN reporting Top 20 semiconductor companies saw 21% sales surge in Q2, Reuters reporting Chip packager ASE sees higher Q3 shipments and the Wall Street Journal (WSJ) reporting MediaTek 2Q Net Profit Jumps 80%; Sees Stronger 3Q.

There does seem to be some sort of recovery in the semiconductor sector. Of course this will be driven by the consumer, enterprise and organizational spending on products and equipment that will largely be driven from demand and perception among users at the end of the value chain. From the consumer perspective, lower average selling prices on chips will make products cheaper so it does make products more appealing to consumers.

As for CAPEX spending by the big guns, well it might take a longer time and cycle for this to increase and enable the equipment manufacturers to increase their sales.

FabTech: Billion-Dollar Club’ members depleted

ACER Surpasses HP in Europe

Following up to our previous two stories this week Acer Climbing to No. 2 and PC Demand is Climbing the Guardian now reports ACER is no. 1 in Europe. According to the Guradian:

The Western European PC market declined in this year's second quarter, but only by 3.3%, according to the latest provisional numbers from Gartner. Acer increased its unit sales by 24.3% to 3.2m units to take top spot from Hewlett-Packard, which grew sales by only 1.4% to 3.0m units. This was mainly the result of Acer shifting almost half the netbooks sold in Europe.

Basically, the professional PC market plunged by 21%, hitting companies that sell a lot of business machines such as HP, Dell, Lenovo and Fujitsu. The consumer PC market grew by 21%, benefiting companies such as Acer, Apple, HP and Samsung -- those with more consumer-oriented products, and netbooks in particular.

Ranjit Atwal, principal analyst at Gartner, says: "Without mini-notebooks, the market would have declined more than 15%, but given the new routes to market and price points of these PCs, they have managed to prevent a more severe decline."

Well it seems the netbooks have helped ACER get ahead of the pack. It strange I see this today since last night I received an email from a friend saying how he enjoyed using is ACER laptop on a recent trip to the US. He said: "Acer seems to be making real market inroads here in the UK, and I much prefer their offerings to the Asus equivalents - they just look better built and classier." It seems he was right on the money.

Acer do need to be careful though. I have a friend whose ACER has failed five times and he has had to take it back to the ACER service center five times. They have not resolved the issue and, in my opinion, should offer the money back or give him a new PC. In Contemporary Strategy Analysis Grant wrote:

"During the 1990s, desktop PCs becoame commodity items idnetified by their technical specifications more than by their brand names. Yet, Dell Computer;s direct sales model allowed it to differentiate its PCs by permitting customers to design their own computer sustem and offering complementary services such as online customer support, three-year on-site warranty, web hosting, installation and configuration of customers' hardware and software." (Chapter 9, Differentiation Strategy)

The point being that while ACER is doing well in Europe and expanding globally, they need to back it up with the right level of support and services. If a computer inexplicably fails five times, they should replace it. When computers fail they cause frustration and emotional distress and PC makers should be attuned to that fact. I myself have owned two ACERs. The one got really old when it needed its first service and the second one we bought earlier this year and we are happy with it. But we are lucky and perhaps my friend just got unlucky with getting the wrong one out of the box. Other companies it seems may be more attuned to the bundling of services and customer care than does ACER.

I personally am very impressed with the Dell support here in Taiwan. I have had two HDD crashes so far and both times they have responded quickly and effectively (I lost a lot of data but that is not the support teams' fault). I have other friends who are equally impressed with Lenovo's service both here in Taiwan and in the US. ACER needs to be attuned to this and backup their brand promise and delivery with tangible and meaningful services and offerings that protects the consumer and makes each consumer feel secure with their machine. Preferably 99% of the PCs do not fail, but when one fails, they should act fast and without hesitation or discussion.

Guardian: Acer top in European PC sales, says Gartner

TSMC to Diversify - LEDs and Solar

Bloomberg recently reported TSMC is looking to diversify their business into the solar and LED industry. The reason to diversify is slowing sales growth. According to Bloomberg:

The chipmaker [TSMC] is considering purchasing companies in the solar and light-emitting diode industries, Chairman and Chief Executive Officer Morris Chang said in an interview at the company’s Hsinchu, Taiwan headquarters yesterday. He didn’t identify any acquisition targets or specify investment amounts.

“We can start out maybe first purchasing a small company, but use that as a nucleus for growth,” Chang, 78, said. “I think we have gotten into a situation where everybody seems to be really comfortable and not particularly hungry anymore.”

Chang, who replaced his handpicked successor as chief executive in June, pledged to boost growth by moving into new businesses after the global recession drove the company to its worst profit drop in seven years. Global sales of LEDs, or chips that light up television screens, are projected to double over the next four years and solar-cell industry revenue is estimated to climb an average of 45 percent in the four years from 2010.

Necessary Expansion

“It’s necessary for the company to expand into new businesses since sales growth in the core foundry business has slowed,” said Kenneth Lee, a semiconductor analyst at Fubon Securities Co. in Taipei. Lee upgraded the chipmaker to “add” from “neutral” and raised the stock-price estimate 12 percent to NT$65 on July 31.

Taiwan Semiconductor, whose customers include Intel Corp. and Texas Instruments Inc., on July 31 reported a third consecutive quarterly profit drop. The company forecast third- quarter sales that exceeded analyst estimates, citing a recovery in demand for computers and electronics.

The so-called chip foundry market, of which Taiwan Semiconductor controls a 49 percent share, will post a sales decline of as much as 20 percent this year and will take until 2011 to return to the same levels as 2008, Chang told investors on July 31.

Morris Chang is still kicking and ticking. Good for him. He is a five decade veteran of the semiconductor industry and he is still thinking of and searching for possibilities to expand the business and create growth for TSMC. The article later reports that Rick Tsai, Chang's successor and predecessor (odd but true) will head up the new business. But apparently some investors are not too happy with this announcement believing there is still enough room for growth in the pure-play foundry industry.

Of course I understand Chang's point. The industry has been hammered over the last year, the article says the industry will only properly recover in 2011 and yet somehow they need to lead growth in the company. The foundry industry (especially with Global Foundries thrown into the mix) is becoming a very crowded place and the competition harder and stronger. Diversification into new products and markets (classical Ansoff matrix stuff) may provide the only alternative.

What is interesting is the approach. According to Chang (see above) they may buy a small company and use that company as a "nucleus for growth," that is I am guessing they will emphasize organic growth rather than growth through aggressive merger and acquisition (M&A) activity. This might be a more sensible approach since as they grow organically they can learn about the in's and out's of the new business. Of course TSMC is in the fortunate position where they are market leaders, have enough capital to empower this organic growth and have both the leadership and technical capabilities to do so. However, this approach also feels similar to the way the technology industry was fostered and grown in Taiwan.

Another aspect to consider is that Many M&A do fail because the two companies are unable to work constructively together. One of my professors recently pointed out the failure of the Daimler Benz and Chrysler merger can in part be attributed to cross cultural clashes and misunderstandings. By purchasing a smaller company, TSMC will be able to dominate them and impose their culture on them and ensure the company grows and moves in the direction they want it to move in.

So why would investors be concerned? Well the article says the investors do like the "clean" business model TSMC currently has and that they believe this type of activity is 10 years too early. Granted the article only quoted one investor and one wonders how representative he is of the investors in general. Perhaps investors are concerned over the short term diversion of funds and resources that may stifle short term growth. They might also believe TSMC cannot succeed in this business as the industry sectors are vastly different in some way. Whatever the case may be, if the majority of shareholders are averse to this kind of activity, I am sure TSMC would not pursue it. One would imagine that this approach has also been discussed at the board level and that the board has given TSMC the go ahead. So why wouldn't they?

Comments and feedback always welcome.

Bloomberg: TSMC in Talks to Buy Solar, LED Companies, Chang Says

Taiwan Memory Restructures

In Taiwan Government to Invest in DRAM Industry we observed the Taiwanese gvt. was looking to invest in and consolidate the on-island memory industry to give it a more competitive structure and to help it obtain some of its own IP so marginal costs could be reduced through eliminating the licensing of patented technologies. In The Dream is Gone: No Gvt. Backed Merger for Taiwanese Memory Industry we quoted a Bloomberg article that suggested there would be no gvt. backed merger of the on-island DRAM industry and that Taiwan Memory would be an independent company. Today Taiwan News has an article on the restructuring plan of Taiwan Memory. According to Taiwan News:

Newly-established Taiwan Memory Co. (TMC) has officially filed its business plan with the Ministry of Economic Affairs (MOEA) to participate in a government project to restructure the DRAM industry, Vice Minister Hwang Jung-chiou said Tuesday.

The MOEA first put forth in March the idea of setting up the TMC as part of its efforts to consolidate Taiwan's ailing dynamic random access memory, or DRAM, industry. The company has recently completed its establishment, with registered capital of NT$500,000 (US$15,244).

Under a project unveiled in July, the government will allocate a maximum of NT$30 billion to support one or two local DRAM companies to compete with their foreign counterparts, particularly those in South Korea.

Companies interested in obtaining the government funding should apply with the MOEA within three months, after which the ministry will review their qualifications.

"TMC is a bellwether, and we hope it will pass the screening, " Huang said.

Huang, however, would not disclose the amount of investment requested by TMC.

To qualify for the funding, the applicants should have the ability to efficiently acquire overseas intellectual property and technology usage rights, as well as fair and balanced research and development records from both domestic firms and overseas partners, according to requirements set by the MOEA.

The MOEA also demands that the international collaboration must provide adequate training of local talent and that the re-structuring plan must aim to improve existing corporate structures and broker possible mergers and acquisitions.

TMC, which aims to develop its own technologies in collaboration with Japan-based Elpida Memory Inc., is so far the only company that has filed its business plan to bid for the funding.

MOEA officials said they believe the Formosa Plastics Group will also file an application.

Two of Formosa's affiliates -- Nanya Technology Corp. and Inotera Memories Inc. -- have maintained a partnership with U.S.-based Micron Technology Inc., a leading DRAM technology provider.

TMC originally hoped to cooperate with both Elpida and Micron, but Micron turned down the proposal in April and decided instead to further reinforce its long-term cooperation with Nanya and Inotera.

Nanya and Inotera executives have urged the government to give the Micro-Nanya-Inotera alliance the same level of support it would have given to a Micron-TMC venture.

Oversupply in the memory industry dates back a few years now to the first proposed launch of Windows Vista and the memory makers have been struggling ever since. Samsung, Elpida and Micron all have their own patented technologies but the big DRAM makers in Taiwan are manufacturers and while I am sure they do have some patents, the core technologies required to make DRAM chips must be licensed from one of the other companies. It is good to see the gvt. is urging companies to develop their own IP and have tied the financial assistance that will be allocated to the industry to both the development of local Taiwanese talent and also to encouraging companies to develop their own IP. In my view this will ensure the companies have a far more sustainable business model and ensure their per-unit marginal costs are comeptitive. However, R&D is typically expensive but if other companies can do it why not the Taiwanese. Taiwanese companies have already shown tremendous innovation in other areas of the high-tech sector. I don't doubt they can innovate in this sector too with the right motivation.

As for who gets the money, I would suggest Taiwan Memory will at least get some of it. It does seem to be the favored company with the head/founder John Hsuan being appointed by the gvt. to take over. As for the other alliance (Nanya/Inotera/Micron) well I suppose that would depend on their relationship to the key players in the gvt. We will be interested to see if the money does flow the other way (it is possible) but it may defeat the aims of the gvt. to establishing a competitive Taiwan based DRAM company on the island. Two or three DRAM companies may be one or two DRAM companies too many and therefore the gvt. may have little interest or motivation to invest/support a second alliance. We will see. Only time will tell.

As always your comments/observations are welcome.

Taiwan News: Taiwan Memory Co. files business plan for DRAM restructuring

Acer Climbing to No. 2

Yesterday, in PC Demand is Climbing we noted that PC demand had started to increase again due to a a strategic focus on prices from the main PC suppliers. We also noted "There was speculation earlier in the year that ACER would climb above Dell to no. 2." Well, as if on cue, Digitimes yesterday quoted an IDC report saying that Acer was second overall amongst PC vendors in in Q2 2009 with a market share of 18.5%. According to Digitimes:

Acer shipped 6.65 million notebooks in the second quarter of 2009, pushing its share in the global notebook market to 18.5%, compared to 17% in the first quarter, according to data compiled by IDC.

Hewlett-Packard (HP) retained its top ranking position with second-quarter notebook shipments totaling eight million units, but saw its market share decline to 22% for the quarter, down from 22.7% in the previous quarter, IDC said.

Total global notebook shipments reached 36 million units in the second quarter, up 5.6% from 34.1 million units shipped in the first quarter, IDC said.

Dell is certainly facing challenging times. In October last year in Dell's Business Model Struggling to Survive we noted that Dell had started to shift away from their traditional business model towards outsourcing their manufacturing. This started to occur during the big downswing in the economy and one can only imagine that realigning systems and processes with new overall strategic imperatives is very difficult during a normal economic cycle and especially challenging during a large downswing.

As for competing on price, it further highlights how increasingly commoditized PCs are becoming with very little room for product differentiation between competing vendors. And if companies are competing on price, they really do need to have a competitive cost structure throughout the business.

As for Acer, how have they risen so far? Last year in The Rise of Acer we quoted Drew Cullen who said Acer had "decided to build a brand business, to major on notebooks, and target small and medium business and consumers in particular. Also, it looked to the developing world – especially the BRIC (Brazil, Russia, India and China) economies as another growth engine." The article is worth a revisit.

Digitimes: Acer market share rises to 18.5% in 2Q09, says IDC

PC Demand is Climbing

Reuters reports that demand for PCs is starting to increase again but argues that the PC manufacturers have defended their market share (and tried to seize market share) with aggressive pricing strategies. According to Reuters:

A gradual bounce back in consumer demand is helping keep the struggling personal computer market afloat, but plunging prices and a shift toward cheaper machines will keep up the pressure on profits.

Globally, consumers are coming back to PCs, but they are doing so at prices as much as one-fifth lower than even a year ago, analysts say.

Hewlett-Packard Co, Dell Inc and rivals Acer and Lenovo have slugged it out to keep sales up and safeguard or take market share: a battle that of late has been waged by aggressive pricing, analysts say.

Pacific Crest Securities analyst Brent Bracelin noted PC prices have fallen for years, but the decline accelerated with the introduction of no-frills netbooks. He said PC makers have plenty of experience managing costs to maintain margins.

"There's always going to be pressure," he said. "The question is how well do you manage the supply chain and try to reduce costs at the same pace as the price decline or faster."

The global PC market is still limping along, with second-quarter shipments falling 5 percent from a year ago, according to Gartner. But that result was better than expected, and Gartner said the continued growth of low-cost laptops was a driving factor.

A bounce back in the PC sector is good for Taiwan. The bounce back, if real, will certainly seep through the supply chain and increase demand from PC component suppliers. This in the long run will have a positive impact on the Taiwanese economy and hopefully ensure people here will be able to find more jobs and opportunities. The other interesting side of this would be to understand who has lost and gained. There was speculation earlier in the year that ACER would climb above Dell to no. 2. Time will tell I suppose but my guess would be that in these times that demand frugality and attention to cost, the Asian suppliers might be better off.

Consumer PC demand is back, but at what price?

Semiconductor Professional Looking For Work - Can You Help

Hi All,

This is the first time I am doing this.

I have a friend who is a qualified engineer and has extensive experience in the Semiconductor industry here in Taiwan. She has worked as a project manager and also as a quality control engineer at companies such as ASE. She took time off to start a family but is now looking to get back into the Taiwanese Technology Industry.

She is either looking for a route back into semiconductors or something along the lines of technical writing/marketing for more downstream products such as motherboards, PC's etc.

If you can help and are legitimate, please send me an email at durbanbay@yahoo.com. I will forward you her resume and contact details.

Thanks a lot.
Paul

Back to Blogging

Hi Tech Taipei is back. Sorry for the long (unexpected) break. I took time off to complete my MBA dissertation and then took a rest for a few weeks. Well the dissertation is finished and I am rested so its time to refocus on the Taiwan Technology Industry again. I am looking forward to it.

Netbook 2.0 and the implications thereof!

In The Survival of Wintel we blogged on the question of how the Windows-Intel alliance is currently being threatened by ARM based processors and free (or very cheap) Linux based OSes like Google's Android. Yesterday a Chinese manufacturer Skytone (and not a Taiwanese manufacturer) said they would be the first ones to launch an Android based netbook. Of course, the system would be powered by an ARM processor and would come in at a far lower price point than the current Netbooks, especially those with Microsoft.

Then today the Taipei Times had an interesting article on the next round of netbooks. According to the article:

A new class of cheaper, smaller netbook computers might upset the IT establishment this year and potentially usher in new players in a hotly competitive market.

The biggest change in the new pint-sized laptops is what they won’t have: Intel Corp chips or a Microsoft Corp Windows PC operating system, which dominate netbooks today.

The new netbooks, which use less energy, will run on the low-power ARM processor platform now used in nine out of 10 cellphones rather than Intel’s x86-based Atom chip. The UK-based ARM Holdings Plc licenses the chip technology.

As many as 10 ARM-based netbook models could hit the market this year, ARM says, while declining to identify specific manufacturers. Major PC players and Asian contract manufacturers alike are interested, analysts say.

When reading this I thought well, although this may be the first round of Android based PC's, they are not the first Linux based netbook. Remember the Eee PC 4G that came with a customized version of the Linux operating system?

However let's not kid ourselves! The netbook is a "disruptive technology" and it is challenging the traditional notebook space. There are going to be strategic challenges for both Intel, Microsoft and the traditional PC manufacturing giants here in Taiwan! The netbook technology is not that sophisticated and the biggest challenge will be assembly, distribution and brand recognition. The advantage the bigger branded PC makers have is that they entered the market early and so therefore adapted their cost structures to ensure competitiveness in this new market space, and for them it won't matter what processor and OS they use, they just need to assemble the componenets and make sure the systems run, but they need to be wary of potential competition from lower cost manufacturers in China. Of course, the Chinese manufacturers probably do not have sufficient scale (to manufacture) and sufficient brand presence to bash down the bigger boys now. But five years down the line? We will wait and see.

The challenge posed by ARM processors is a classic example of disruptive technologies and how they can alter the entire market. Over the past few years the brutal prices wars between Intel and AMD have been very visible while ARM has been slowly but surely establishing themselves in the mobile phone space and establishing presence, dominance and brand recognition. Their cost structures are also incredibly low as compared to Intel as they do not own fabs and license out the technology rather than manufacture the product themselves.

The Innovators Dilemma describes how new companies move into spaces the giants initially reject as not being sufficiently profitable compared to their current market space and how the current major players will continue to sustain technologies rather than look back. The Innovators Dilemma also describes how the new players in a largely neglected part of the market are able to take over the market, develop lower cost structures and then push into the higher margin sectors of the industry making it very difficult for existing players to move into the newly established sector because their cost structures have not been designed around the lower margin business. The good thing for Intel though is they did establish the Atom brand and after the launch of the Atom brand netbooks really did take off, but they are still going to have a more difficult battle with ARM than they did with AMD I think.

Netbooks are changing multiple industries and sectors! Do you think this is good for the consumer? I do! Look forward to your comments!

Financial Crisis and Taiwan Tech Industry

So we all know by now the economy is in the worst shape its been in for a while. It seems the stock market is bouncing back but the news isn't all good. Digitimes reports the "jobless rate scores new high in March" and increased to 5.81% and the Taiwan News reports "Taiwan's export orders fell for a sixth month in March, extending the longest run of contractions since 2001, as global demand for electronics goods tumbled." Taiwan News continues "Orders, an indication of shipments in the next one to three months, declined 24.29 percent from a year earlier, easing from an average of 32.7 percent of the two first months of the year."

However, this has dampened some of the optimism. Digitimes reported "IC design house AAT expects 80% revenue growth in 2Q09." Sounds great right? However, read the report and you will see that it is an 80% sequential growth (quarter on quarter) and that right now year-to-date (YTD) revenues compared to the first three months of last year are down 66.7%. So a clever spin on the numbers can make things look a little more positive than what reality suggests.

EMS Now however reports Terry Guo Tai Ming (Hon Hai founder and head) is optimistic and that he "believes the global economy is not as bad as expected. " EMS Now also says "Hon Hai Precision Industry Co., one of the worlds' leading providers of electronic manufacturing services, is recruiting over 1,000 personnel in Taiwan ." Well at least he is putting his money where his mouth is and helping to cut that unemployment rate.

Another big firm is also hiring. Taiwan Semiconductor Manufacturing Corp. (TSMC) "CEO Rick Tsai has confirmed the semiconductor manufacturing giant will be increasing its R&D employee headcount by 30 per cent and manpower in its design service unit by 15 per cent to drive a quick transition to 32nm in 2010 and sub-32nm by 2011," says the inquirer. Well thats also good to see.

So although the news on unemployment, exports and revenue reporting is not good, the light at the end of the tunnel is increased opportunities at Hon Hai and TSMC. Are we edging out of the crisis? What long term impact will the crisis have in Taiwan's technology industry? Will orders pick up later in the year?

Look forward to your comments and thoughts on these issues.

Sony Looking for Taiwanese JV Partner

Interesting article on Smarthouse suggesting Sony is looking for a Taiwanese company to create a joint venture to manufacture Vaio notebooks. Sony are apparently in a debt laden hot spot and apparently want to form an equity JV with someone here. They have, according to the article, been talking to BenQ and (obviously) Foxconn (who doesn't talk to Foxconn?). I like what the senior BenQ exec. said:

"Sony does not have any significant share of the notebook market and by majority their Vaio products are niche. They are not purchased by business or enterprise organisations as they are too expensive and while they are well designed they are primarily a consumer home purchase which makes it difficult to return a profit especially in today's notebook market. As a result BenQ chose not to form a relationship with Sony"

I have long shunned Sony notebooks for exactly that reason (or though he articulates it better). They are niche, high-end products that people pay a fair buck for. I have never actually used one so cannot speak to its functionality or features, but I don't see the need to pay so much for something that is not going to do any better or worse than something (quite a bit) cheaper. This brings us back to the question of brands (see discussion emerging on Acer launches mobile phones in Asia) and what the brand brings to the consumer.

I will probably never ever buy a Sony notebook (and I am a Sony-guy). I have a Sony Surround Sound DVD player, Sony Handycam, Sony Voice recorder blah blah blah and no doubt the quality of the notebook is probably very high. But this brings me to another point! Although I like my Sony products they have, over the years, turned me off with their indulgent focus on proprietary technologies (even down to the MPEG format used on the handycam) and this would make me concerned about their computer. What properietary crap would I have to fight my way through to make it work properly? Probably none, but I don't know, I just don't know! (This proprietary rubbish turns me off Apple too btw)

Anywyay, look forward to your comments as always! Things to expand on in the comments maybe: Do you think this would be a lucrative JV for a Taiwanese equity partner?

Acer launches mobile phones in Asia

AFP reports Acer has launched their first smat phones into the Asian market. AFP writes:

Taiwan-based computer giant Acer on Wednesday launched a series of advanced mobile phones for the Asia-Pacific region, ramping up its expansion into the wireless communication market.

Company executives said Acer was banking on its experience as a leading computer brand to gain a share of the lucrative market for "smartphones" -- feature-packed devices with multi-media functions including web surfing.

The unveiling of the products here will be followed by similar launches in Southeast Asia, Hong Kong, Taiwan, India, Australia and China, they said.

It came two months after the company announced a move into the mobile phone market in February at an industry event in Barcelona.

Best known for its laptops, Acer said its smartphones come equipped with powerful processing and memory capabilities.

"We are facing a very large opportunity here," said Roger Yuen, Asia Pacific vice president for Acer's smart hand-held device business group.

About 200 million smartphones are sold each year and Acer believes the market should grow at 15 percent annually in the next five years.

"Our ambition is to be among the top five smartphone vendors in the world in the next three years," Yuen said.

Applying the brand to Smart Phones is not such a bad idea but I am not sure if their "experience as a leading computer brand" is applicable to the Smart Phone industry. No doubt Acer have cooked up unique smart phone penetration strategies and maybe they are banking on the brand name to provide them with a good image but overall one would imagine the computer-experience and the smart phone-experience maybe a little different and require different strategies. Anyway, technologies are converging and Acer did need to make this move (it was the next logical step after netbooks).

Financial Crisis - TSMC Still Invests

EE Times reports that despite the economic downturn and the severe effect of the financial crisis on the high tech industry, TSMC is continuing to invest for the future while remaining cautious about the presence.

Amid one of the toughest periods in its illustrious history, Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) remains cautiously optimistic about the IC industry and vowed that it will continue to invest in R&D despite the downturn.

TSMC (Hsinchu, Taiwan) plans to hire more engineers. The world's largest foundry provider also reiterated plans to equip and ramp up its 40-nm fab lines this year. It is readying new and separate 3-D and CMOS image sensor technologies. And it is also planning to move the IC-equipment in its R&D fab for the 22-nm node.

Rick Tsai, president and chief executive of TSMC, reiterated industry reports that the silicon foundry giant is seeing new order activity, but he also warned that there are still challenges ahead in the market.

Among those challenges include the overall economy, product demand and margin pressures. "This recession is bad," Tsai said at TSMC's Technology Symposium here. "This is a difficult time for all of us."

Indeed, it has been a humbling time for TSMC. After strong growth in the first three quarters of 2008, TSMC's business fell off the cliff in the fourth quarter of last year.

As a result, the company is expected to report a loss in Q1. It also recently cut about 200 jobs, implemented furloughs and slowed its wafer starts.

Now, there are some positive signs for the company and the overall industry. Inventories are low. Activity in China is picking up. "We are seeing what we call rush orders," Tsai said.

Still, the overall IC market is expected to fall in 2009. "We will see a dip in 2009," he said. "We will see moderate growth in 2010." [...More]

We have argued more times than not in this blog that despite the economic downturn, companies must continue to invest in their future and develop strategic plans that will pull ready them for when the slump is over.

SMIC Posts Big Loss

It seems the foundry industry is getting very very crowded with the emergence of Global Foundries. The industry will be forced to restructure itself and some of the weaker competitors will face bigger challenges. Of course most people (including us) have focused on the obvious rivalry between GF and TSMC but the other foundries will also be caught in the struggle. Digitimes reports China's largest foundry had the biggest drop in revenues in five years.

Semiconductor Manufacturing International Corporation (SMIC), China's largest silicon wafer foundry, experienced its largest net operating loss over the past five years in 2008. The company posted a loss of US$440 million, compared to an operating loss of US$19 million in 2007.

SMIC saw its revenues slide 12.7% to US$1.35 billion in 2008, which the foundry attributed to capacity adjustment at its Beijing fabs as well as the world economic meltdown. [...more]

Well they are still facing a tough industry environment and with addition of a new competitors, the smaller foundries might also have a big fight on their hands.

Look forward to your comments.

Infortrend and The Tale of Despereaux

I used to work for Infortrend, so this is great to see. Now I will watch the movie!



Look forward to your comments..

Global Foundries Challenges TSMC

Well the challenge has arrived. Global Foundries are pushing 28nm technology.

An alliance of technology companies, which includes IBM, Samsung, Chartered, Infineon, STMicroelectronics and the spin-off of AMD's manufacturing operations - GLOBALFOUNDRIES (GF) - has announced the joint development of 28 nanometer semiconductor manufacturing process technology.

The significance of a shrink in the manufacturing process technology (the most recent CPUs are made using a 45nm process) is that it allows either an increase in outright processing performance or a reduction in the size and power required to achieve the same performance.

With GF being the sole manufacturer of AMD processors, this announcement is being viewed by many as a shot across the bows of Intel.

There's no doubt that any progress in semiconductor research from competitors to Intel is significant, but GF is now a supposedly independent semiconductor foundry and, as such, has its sights set on its own competitors, the biggest of which is TSMC (Taiwan Semiconductor Manufacturing Company).

For GF to be a success, it has to appeal to a lot more companies than AMD. The development of a cross-over node at 28nm (full nodes either side are 32nm and 22nm) is being positioned as significant because it may create a differentiator between GF and TSMC. If GF can use that differentiator to take customers away from TSMC, that would represent a significant achievement. [...more]

But TSMC are already expecting to have 28-nm production in Q1 2010 and are already working with customers (see here) to develop 28-nm chips. Maybe the half-node positioning at 28-nm will provide Globalfoundries with some temporary advantage (TSMC at 28-nm will be a full-node process) but they still have to sell it. The struggle will be fun to watch but as one commentor on our blog suggested, GF really have to completely dissascciate themselves from AMD to gain trust in the market. We will wait to see if that happens.

Look forward to your comments as always.

Taiwan's Silicon Valley Shopping Spree

Been while eh! Been really busy, sorry! Our regular comment provider Anon provided an interesting like to the M and A activity of the Mitac-Synnex group. Apparently they have been on a shopping spree.

Every day dozens of employees of the Mitac-Synnex Group, a Taiwanese conglomerate of more than 40 high-tech companies worldwide with a combined annual turnover in excess of NT$450 billion, fly back and forth between Taiwan and Silicon Valley on the U.S. West Coast. Many of these trans-Pacific commuters are financial officers and IT engineers in charge of hooking up newly acquired companies to the financial and IT systems at the group's Taiwan headquarters.

Within the past two years, the Mitac-Synnex Group has bought up more than 20 companies. Just two months ago group subsidiary Mitac International bought the consumer products division of Silicon Valley-based GPS device maker Magellan Navigation for NT$3.2 billion. With the deal the business group secured a 10-percent share of the U.S. market for handheld GPS devices and car navigation systems. On top of that, Mitac International took over Magellan's R&D teams in Silicon Valley and Russia.

Yue-teh Jang, general partner in renowned Silicon Valley venture capital firm The Vertical Group, likens Silicon Valley to a department store that is going out of business. "It's a good opportunity to go on a shopping spree," Jang declares.

Great article. Thanks for the head up. Link below:

Commonwealth Magazine: Taiwan's Silicon Valley Shopping Spree

Intel and the Mobile Phone Market

In Intel and TSMC Strategic Partnership we observed the signing of a cooperative agreement between Intel and TSMC to enable Intel ans system on chip (SoC) designers to integrated Atom processor technology into their SoC. In an analysis of the agreement between TSMC and Intel Electronics Weekly argue this is to enable Intel to more effectively penetrate the mobile/smartphone processor market and to start challenging ARM in a serious way. The article is a good read. Follow the link below for more.

Electronics Weekly: Analysis: Atom Exposes Intel's Mobile Dilemma

Ex-TSMC Employees Protest Redundancies

It is always sad in these economic times when people are laid off from work but if what the Taiwan News is reporting, its sad. Sadly employee practices and treatment in Taiwan can be pretty harsh and most of the labor laws (at least from my perspective) favor the employer with very little support for the employee. Anyway, Taiwan Times reports some former TSMC employees were forced to sign letters saying they voluntarily resigned from the company when in fact they were made redundant. Because they "resigned" they lost any benefits accrued to them. Of course there are two sides to every story, but this would be very sad if true.

More than 20 former employees of Taiwan Semiconductor Manufacturing Co. (TSMC) who recently lost their jobs complained to the Hsinchu Science Park Administration yesterday that they had been unfairly treated by the company.

The workers applied to the park administration to mediate their dispute with the company after accusing TSMC at an earlier protest rally of firing them but forcing them to sign a document certifying that they left TSMC, the world's largest contract chip manufacturer, voluntarily. Some 50 policemen were called in to maintain order.

The workers made a number of demands, including that TSMC issue a certificate saying they did not resign voluntarily and that they be compensated based on retirement or preferential severance terms.

They also insisted that TSMC apologize for describing their redundancies as a company policy to "eliminate the less competent ... employees" and demanded they be given preference if TSMC increases its work force in the future.

Responding to claims, a member of TSMC management said the former TSMC employees could contact the company directly if they had any requests.

"The company will demonstrate the greatest sincerity in helping solve their problems," the TSMC official said.

Kao Shih-nan, secretary-general of the Hsinchu Science Park Administration, said his office accepted the former workers' applications and will help arbitrate the dispute between the two sides.

Hopefully TSMC is not putting in bad employment practices. They have a good reputation. I also hope the laid off employees will be able to find gainful employment soon somewhere else.

Taiwan News: Former Taiwan Semiconductor employees protest loss of jobs

ASUS to Reorg Again

In Clashes at Pegatron and ASUS we shed some light on the internal politics at ASUS and the different power struggles that are starting to effect the company. Power struggles are never good especially in an economic downturn and especially in the face of first ever quarterly losses. Well anyway, hot on the heels of the power struggle news comes a Reuters report suggesting ASUS are planning another major reorg, the second this year. The first cut their departments from 12 to 6 and now rumours sugges they might cut their departments to three and lay off between 5% to 10% of their workforce. According to Reuters:

Netbook PC pioneer Asustek (2357.TW) is planning a reorganisation, its second this year, to further streamline its operations, a company official said on Thursday.

No concrete plans or specific timeframe have been finalised, including the possibility of layoffs, said the official, speaking on condition that his name not be used because he was not authorised to speak to the media on the company's behalf.

"Nothing has been officially announced yet, we're still in the process of planning but the current framework is to further cut our business into fewer departments," he said.

Local media reports on Thursday said the company could cut its number of departments to three from six, and lay off 5-10 percent of its staff.

That reduction would come after Asustek said in January it was halving its number of departments to six following its first-ever quarterly loss in the last three months of 2008. [ID:nTPU001101]

The company pioneered the wildly successful low-cost netbook PC in 2007, but has been gradually losing market share as bigger players such as Acer (2353.TW), Hewlett-Packard (HPQ.N) and Dell (DELL.O) enter the market.

It seems all is not well at the founder of the netbook. A couple of years ago (18-months ago) ASUS were riding high on the launch of their Eee PC but now are being hammered in the market. Why? Who knows? They seem to be a ship without a rudder (strategy) right now and when that happens people reorginze the company! Heck you have to appear to be doing something right!

I really hope ASUS pulls through and pulls through fast. Lets face it they are a good company that have produced good products in the past. They are not afraid to innovate organizationally or product-wise. Spinning off their manufacturing to focus on brand-building wasn't a bad idea, but they should have tried to appease everyone in the process and ensure the transition was smoother than what it has been.

I know ASUS is not finished yet and that they are being severely affected by the current economic climate but being reactionary at this point won't suffice. The Eee PC was a sustainable product and their strategy in this market sector was good. One wonders if they have indeed lost direction and if they have when and why?

Reuters: Taiwan's Asustek plans further reorganisation-source

The Dream is Gone: No Gvt. Backed Merger for Taiwanese Memory Industry

The dream is gone! Sounds like a Pink Floyd song! Oh dear, the floundering industry here in Taiwan seemed to be putting their hopes on a government led initiative to consolidate the industry here in Taiwan. In Taiwan Government to Invest in DRAM Industry we gave some insight into what the government plans to do with the industry but today, Bloomberg has more:

Taiwan’s economic affairs minister ruled out a state-led merger of its computer-memory chipmakers, signaling the government is scaling back its plans to reorganize the $23.6 billion industry.

“It’s too complicated and difficult to have an outright merger,” Economic Affairs Minister Yiin Chii-ming told reporters in Taipei yesterday. Newly formed Taiwan Memory Co. “will focus on obtaining technologies and then look for existing plants in Taiwan for manufacturing needs.”

Yiin joins John Hsuan, appointed by the state to oversee the creation of Taiwan Memory, in raising doubts this week about the scale of the island’s plans to revive its unprofitable semiconductor industry. Since last year, the economic affairs ministry has said Taiwan may push for consolidation, fueling speculation that the six domestic chipmakers would merge in a so-called “Big Bang.”

So then, what is Taiwan Memory all about. Well according to Bloomberg:

Hsuan, an honorary vice chairman at United Microelectronics Corp., was named last week by Taiwan’s government to create a domestic chipmaker that could challenge global industry leader Samsung Electronics Co.

The island’s six computer-memory chipmakers, saddled with about $11 billion of debt, should consolidate with Taiwan Memory because having more than one producer “makes no economic sense,” according to Morgan Stanley analysts Frank Wang and Jerry Su. The company should also merge with or invest in Elpida Memory Inc. to access the Japanese chipmaker’s technology and collaborate with Boise, Idaho-based Micron Technology Inc., they wrote in a March 10 report.

Instead of pursuing mergers and building its own multi- billion-dollar semiconductor factories, Taiwan Memory may acquire manufacturing plants from the domestic chipmakers, Minister Yiin said yesterday.

Mmm. Interesting. There have been rumours flying around about industry consolidation for sometime but now it seems Taiwan Memory will be added as a competitor and the industry will become even more fragmented. Is this good for Taiwan's memory industry? I have absolutely no idea. On the one hand they will buy assets from struggling companies to help them alleviate their debt but then the existence of these companies will be jeopordized especially, if as speculated, Taiwan Memory imports Elpida's technology. Some of the six memory companies in Taiwan will collapse I fear. However, with the development of Taiwan memory, at least there will be some place for the expertise to go. These deals are becoming more interesting and I will keep you up to date (and do my best to avoid speculation!).

But for now: "I cannot put my finger on it now. The child is grown, the dream is gone. I have become comfortably numb." So says Pink Floyd!

Oh yes, as always, I look forward to your comments!

Bloomberg: Taiwan Rules Out Chip Mergers in Industry Reorganization Plan

Taiwan Government to Invest in DRAM Industry

Thats right, the government is committing close to one billion US dollars to bailing out the industry. The bailout (sounds like a US financial blog with that word doesn't it) is to consolidate the industry. The International Herald Tribune has an interesting article on the bailout:

Taiwan will inject as much as 30 billion Taiwan dollars, or $867 million, into Taiwan Memory, the new computer memory chip company that it is setting up to bail out its struggling memory chip sector.

"The less money the government invests, the better," said John Hsuan, an industry veteran named last week by the economics ministry to oversee establishment of the new maker of dynamic random access memory, or DRAM, chips. He said that he expected "no more" than 30 billion dollars from a national development fund to be invested in it.

The article continues

Taiwan announced the formation of Taiwan Memory last week and said the government would hold less than half of the company. The company would try to pull together the island's struggling chip makers, including Powerchip and Nanya Tech, and would also bring in technology from Elpida Memory of Japan or U.S.-based Micron Technology.

Actually this kind of stepping in by the government does not surprise me. The government have long been the silent overlords of the technology sector in Taiwan with the initiation of ITRI, ESRO, the Science Parks and so much more. To their credit, once things get going they step aside and let the entrepreneurs take charge. Even here we see the alliance is a little unwilling. The government doesn't want a majority stake in the company and I am pretty sure once the ship is sailing they will slowly disengage. I don't think the government is looking to nationalize the industry, they are just trying to strengthen it and make it more competitive, which isn't a bad thing.

International Herald Tribune: Taiwan set to inject $867 million for DRAMs

Globalfoundries Getting in on the Game

Competition in the pure play foundry industry is about to heat up. ars technica has an interesting blog article on AMD's spinoff company Globalfoundries who seem to be on thr prowl for TSMC and UMC customers. ars technica writes:

It's launched, online, and the now-independent Globalfoundries is searching for its non-AMD customers. CEO Doug Grose is reportedly visiting Taiwan to seek relationships with companies that may be currently contracting with TSMC or UMC for their semiconductor foundry needs. If true, this would raise questions regarding the future of AMD's relationship with TSMC. That company currently fabricates Radeon processors for Advanced Micro Devices, and while Globalfoundries and AMD are now separate entities, they are separate entities that remain joined at the hip. Globalfoundries will probably take over fabbing ATI Radeon processors at some point, but is not yet believed to have the bulk silicon production in place to do so.

So what are your thoughts? Will Globalfoundries actions in Taiwan threaten the relationship between AMD and TSMC? Will Globalfoundries be able to compete effectively? Are TSMC and UMC in a world of trouble? I will be interested to read your comments. In the meantime, I look forward to see how the pure-play foundry industry landscape changes. (Remember last week TSMC and Intel signed an agreement). The future is always exciting, especially in this industry

ars technica: Globalfoundries on the prowl for non-AMD customers

Clashes at Pegatron and ASUS

I was just pointed to an excellent article on TweakTown.com describing the internal power struggles at ASUS and Pegatron. The article makes for interesting reading and provide powerful insight into the internal mechanism of Taiwan business. We quote the first paragraph below. If it tweaks your interest please follow the link below:

Asus' first ever quarterly loss during the first year of its separation of Brand and OEM businesses indicates a major stumble for Johnny Shih, Chairman of Asustek. Tung Tsu Hsien, who used to be the vice chairman of Asustek and who now holds the position of chairman of Pegatron (the breakaway OEM division of Asustek), still remembers the feeling of achievement after building up the Asus brand, however, he was forced to leave the branded business and handle the OEM business a year ago. The break between former master and apprentice is apparent. Asus' internal clashes are on the stage for everyone to see during this cold winter.

Very interesting article: ASUS internal clashes could create a new brand?

The Survival of Wintel

An interesting piece appeared on the PC Mag website the other day debating the future of the Intel-Microsoft PC duopoly. Intel and Microsoft have both dominated their sectors of the PC industry for almost as long as the PC industry has been around. Both have been ruthless in taking out competition and both have been capable of putting acceptable-to-great products in the consumer market. They are bothed backed by massive marketing machines and gain significant brand recognition benefits, but the landscape is changing with a shift into mobile internet devices and the question is, how significant is the Wintel duopoly in the MID realm?

The rise of ARM based processors in MID and other chip designers like Nvidia getting into the game poses definite challenges to Intel. For Microsoft, emerging mobile phone operating systems like Android are posing another challenge. I suspect both Intel and Microsoft won't give up without a fight and they are tough competitors who have been there and done it before.

The article is interesting. Follow the article link: Can WinTel Survive?

Intel and TSMC Strategic Partnership

Intel and TSMC have struck a deal to co-manufacture Atom system-on-chips. According to PC Mag:

Intel and foundry Taiwan Semiconductor Manufacturing Co. have struck a deal to allow customers to design their own Atom system-on-a-chip processors and manufacture them at TSMC.

Intel is not outsourcing the Atom processor, as this reporter speculated on Friday. Customers who wish to buy standalone Atom chips will buy them from Intel, and Intel has not altered its Atom roadmap or production.

Intel, however, has also made the Atom a cornerstone of a system-on-a-chip strategy, such as the "Moorestown" and "Lincroft" for the mobile Internet device market. Now, an Intel customer will be able to use TSMC's process flow, tools, and intellectual property (both from TSMC and its partners) to create their own Atom-based system-on-a-chip products, which will be sold under the Intel brand.

"It's enabling Atom on TSMC,"said Anand Chandrasekher, general manager of Intel's Ultra Mobility division, during a conference call Monday morning. "It will allow TSMC to go after new market segments and allow Intel and TSMC to go after new market segments together."

This deal will inevitably be more beneficial for TSMC but it will also enable Intel to penetrate other market segments more easily and one would guess enable system-on-chip designers to leverage some of the advantages of the Intel Atom processor for their own designs. Its an interesting partnership to say the least.

PC Mag: Intel, TSMC Strike Atom Design, Foundry Deal

New Computers, Hard Disk Crashes and a Birthday

This morning I woke up deciding to do some backups of videos and pictures of a recent vacation I had stored on my Dell Latitude E6400. Of course when I turned the computer on there was this strange cracking sound and the message saying there was no bootable drive. Sh*t! HDD crashes just cause a whole world of trouble and a lot of work and personal data is lost. I am usually pretty good about backing up but this time I just didn't have a chance and so I didn't back things up for a while. I am hoping some of the data can be recovered.

The irony is that today is my wife's birthday. We were thinking of buying a new computer and up until today I was pretty impressed with my Dell and thinking of buying one for her as a birthday present. But, when a four month old computer has a HDD crash for no apparent reason I would be mad to buy another one? So Dell lost a sale especially since there was no support available. So we went and bought a new Acer Aspire 4935G. The computer isn't bad so far. Our last computer was an Acer Tablet that we ran into the ground over five years. We have always been happy with Acer and the support and performance offered. We were almost tempted into buying a Lenovo but the addition US$300 price tag didn't seem to make it a worthwhile process. So we will be running this new Acer and see how it goes. If it screws up I will let you know.

Oh yes, today is Hi Tech Taipei's first birthday. So Happy Birthday Hi Tech Taipei. Our first post on the 500 GHz processor has become our Raison d'être. So in one year we have had close to 250 posts, sometimes we have taken a break, other times we have been very active but we are still here alive and kicking.

Anyway, to all of you who have read my blog and participated by commenting, thanks. I appreciate your participation and please continue. As for the rest of you or anyone else, I look forward to your participation in the future.

So happy birthday and may our Aspire live long, longer than my Dell.

K. T. Li: The Godfather

I completely missed this. Taiwan Journal had a piece on K. T. Li, a person many regard as the godfather of Taiwan's hi tech industry. He was there at the beginning and helped to import many technologies to Taiwan. He was instrumental in getting the neccessary funding for TSMC and for helping to start the company. Without him the technology landscape here would be very different.

Please follow the link to read the article: Nation commemorates 'godfather of technology', its worth taking the time. And if this arouses your interest, you can try to find a copy of K.T Li and the Taiwan Experience, an excellent biography of K. T. Li (although the English is a little rough). If you are in Taiwan, I know the Taiwan University library has a copy that you may borrow.

TAITRA on Taiwan and Branding

Ok, so maybe its a little bit of "blowing our own horn" propoganda, but hey, somebody has to do it right? In a press release TAITRA speaks about their efforts to brand Taiwan products:

Taiwan’s information and communications technology (ICT) companies play a key role in the global supply chain for electronics products. Taiwanese companies account for about three-quarters of the world’s production of PCs and half of the world’s liquid-crystal displays (LCDs). In addition, Taiwan makes about a quarter of the world’s semiconductors and about a fifth of the world’s mobile phones.

Taiwan has a population of 23 million and a land area of only 36,260 square kilometers, less than half of a percent of the 9.6 million square kilometers of land in China. Yet the well-educated, industrious people of Taiwan have helped to carve out a huge niche in the global ICT industry.

The press release continues:

To promote the Taiwan’s industry, the government has made the development of branding the key task for raising the competitiveness of Taiwan’s economy. There are two ultimate goals of the Branding Taiwan programme. The first is integrating resources to assist the establishment of brands and create a favourable environment for development. The second is to aid Taiwan enterprises in brand development and increase the value of Taiwan’s international brands.

Actually, it may be a little bit of self promotion but what TAITRA is doing is great. Previously on this blog we have bemoaned the lack of ability in branding in Taiwan and TAITRA have seen the weakness and have stepped in to help. If they can acquire and pass on the relevant expertise and transmit effective and meaningful branding capabilities to more and more tech companies, the sky will be their limit.

You may scoff and scorn at this suggestion but this is a very typical Taiwanese method: importing expertise and knowledge. It should be recalled that one of the fathers of the tech industry here (K.T. Li) developed an advisory council that comprised soley of foreigners including the then head of Texas Instruments. The sole purpose was to understand how to import/transfer technologies to Taiwan.

If TAITRA can successfully import and transfer the neccessary branding skills and knowledge to companies here, Taiwan will become an even more potent force in the global technology landscape.

All I can say is go Taiwan (now that sounds a bit biased doesn't it?)

Hon Hai and Foxconn Invest

Hon Hai and Foxconn have been busy with some foreign investment strategies. The first is what seems to be a US$60 million cooperative venture in Turkey with HP. According to CNN Money:

Taiwan's Hon Hai Precision Industry Co. (2317.TW) plans to invest up to US$60 million to build a personal computer manufacturing facility in Turkey together with Hewlett-Packard Co. (HPQ).

"H-P is our strategic partner and there is evidence of growth in the market for PCs" in Turkey, said Hon Hai spokesman Edmund Ding on Wednesday.

An article in Vietnam Investment Review suggests Foxconn will build a handset factory in North Vietnam. The article says.

With initial investment of $200 million, Foxconn’s new factory, which will be able to produce nearly 90 million units per year, will become the second foreign-invested facility in Vietnam to produce mobile phone handsets, after Korea’s Samsung.

The new facility will be built on the 485 hectare Binh Xuyen 2 Industrial Park, the developer of which is Fuchuan, a Foxconn subsidiary. Binh Xuyen 2 is designed to accommodate Foxconn and its suppliers to locate manufacturing facilities in Vinh Phuc province, about 50 kilometres north-west of Hanoi.

More Foxconn news is that according to Trading Markets, Foxconn intends to employ an addition 10,000 people in their Wuhan, China plant.

Taiwan-based electronics maker Foxconn Technology Group (Foxconn) is likely to recruit as many as 10,000 employees for its Wuhan plant this year in accordance with its production expansion plan, disclosed a person in the know recently.

In the current economic climate pounding the electronics sector and driving down sales, with rumored massive layoffs at Foxconn's Shenzhen plant and with Foxconn apparently laying off people in other parts of the world, it makes for interesting and surprising reading. It should be said though that Foxconn's strategic view of Vietnam has been a long term vision and they were intending to invest their for sometime, as apparently have many other Taiwanese companies.

The investment in Turkey is another interesting choice. My sister lives their and the PC enviornment in Turkey seems fairly primitive and unsophisticated and their probably is huge demand. Of course this will also help them gain more direct access into Middle Eastern and Mediterranean markets and in the long term penetrate central Asia although their 2008 investment in Russia may be able to penetrate those markets better.

CNN Money: Hon Hai Precision, H-P To Build US$60 Million PC Manufacturing Plant In Turkey
Vietnam Investment Review: Foxconn making good on its ambitious promises
Trading Markets: Foxconn Said to Recruit 10,000 Employees for Wuhan Plant