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

25% of 2008 Intel Revenue from Taiwan

Digitimes reports Taiwan was responsible for 26% of Intel 2008 revenue.

While Intel's sales were flat in 2008, Taiwan was one of the few geographic regions where sales increased. According to the chipmaker's recently released annual report, revenues from Taiwan increased about 15% in 2008 to US$9.9 billion, while the company's overall sales of US$37.6 billion were down a slight 2%. Leading the way in terms of sales growth in 2008 for all geographic regions was the Americas (outside of the US), where sales were up 16.5%. Japan was the only other sales region that saw growth in 2008, at a slight 1.5%.

Taiwan accounted for more than 26% of Intel's sales in 2008, up from 22% in 2007.

Amazing! Honestly, still shows there is some traction in Taiwan's tech sector when everyone is busy writing them off.

Digitimes: Taiwan accounts for more than 25% of Intel revenues in 2008

Fabtech Editorial on Taiwan DRAM Industry

Fabtech has an excellent editorial on the consolidation of the DRAM industry in Taiwan. Citing lack of any IP as a competitive weakness, and outlining how the government here intends to consoldiate the industry while strengthening the IP, the editorial ends saying "some way down the road more consolidation will be required to bulk up against Samsung. IMHO, either Micron or Elpida should get all the Taiwan DRAM companies, that way creating a low-cost, IP protected powerhouse that would keep Samsung in check."

Febtech: Taiwan’s DRAM manufacturers split in the middle

Morris Chang Predicts Three Year Recovery

Interview in the Wall Street Journal, Morris Chang anticipates the semiconductor industry will take three years to recover to 2008 sales levels. The pounding the semiconductor industry has taken over the past few months due to the financial crisis has forced semiconductor sales to drop dramatically. According to the WSJ:

The global semiconductor industry has yet to hit bottom and likely won't recover fully from the current downturn for another three years, according to one of the industry's senior figures, Taiwan Semiconductor Manufacturing Co. Chairman Morris Chang.

In an interview Friday, Mr. Chang said the industry, which has been hard hit by the global economic slowdown, was "pretty close" to the bottom. But he said that a return to the sales volumes that the industry had before the current slump would be extremely slow. "You get a precipitous drop and a very slow rise," he said.

"I think it will be 2012 before the total revenue of the semiconductor industry gets back to the '08 level," said Mr. Chang, who founded Taiwan Semiconductor in 1987.

The WSJ continues:

Mr. Chang also said he expects industry consolidation to pick up. He predicted a continued decline for companies that make both consumer products and semiconductors. Of the companies that still do both, he said that only Samsung Electronics Co. and Intel Corp. are in a strong position. He said others would likely divest themselves of their semiconductor operations, leaving production to companies like TSMC, which manufactures semiconductors on a contract basis for other companies.

Mr. Chang has worked in this industry for a long time and his thoughts do carry some weight. It will be interesting to see how this all pans out over time, especially the consolidation of the foundry industry. What will be more interesting will be to see how the new foundry company being spun off will survive. The foundry business is a tough business to play and one can only imagine the perils of entering the industry at this point in the economic cycle.

Wall Street Journal: Executive Sees Chip Industry Recovery in Three Years

Taiwan IC Design Houses See Small Recovery

Digitimes reports that same design houses like MediaTek, ITE Tech and RealTek are seeing a recovery in orders. According to Digitime, MediaTek is expecting 10-15% growth in February and both ITE and RealTek have seen increased orders from companies like ASUS and MSI.

According to Digitimes: "Customers in China have begun to rebuild inventory levels, helping sales of Taiwan IC design companies to grow this month, according to industry sources." Digitimes also says analog design houses and LCD driver chip design houses are also expected to see some growth in February.

To see some sectors making small, incremental gains is encouraging. Is this growth sustainable over the course of the next few months? Who knows? Its been a wild ride down over the past few months and why will the short term future be any different?

Digitimes: Taiwan IC designers see recovering sales

Chinese Economic Weakness

Here is a heads up on a great article on the Economist website on the flaws in the Chinese economy. A couple of things pertinent to the topic of this blog include their comments on Hon Hai:

In 1988 a small, secretive, Taiwanese plastics manufacturer named Hon Hai opened a factory in Shenzhen that has since grown to the size of a city, with more than a quarter of a million employees. Little of what its Chinese subsidiary, Foxconn, produces is directly disclosed by the company but it is broadly believed to include iPods, Nintendo and Microsoft games consoles and laptops, either in whole or part, for most leading brands.

Because of the sheer number of people it employs, Hon Hai’s every move generates huge interest in local newspapers, although the firm itself says little. In 2007, presumably for much the same reason that it moved to China 20 years ago, it opened a facility in Vietnam which is said to be undergoing a large expansion. Last summer the Taiwanese press was abuzz about production moving back home. Now reports from Taiwan say that the Shenzhen workforce will be cut from 260,000 to 100,000 and that there will be more jobs inland. Whatever the figure turns out to be, Hon Hai is a nimble transnational company, able to move production around as circumstances change. And it is not alone.

A common feature of Taiwanese tech companies is their entrepreneurial bent. This makes even big companies like Hon Hai surprisingly agile and mobile. There are of course some downsides to this type of thinking, but the ability to move fast is a big advantage in any industry.

Something else which caught my eye and has been something we have commented on before here:

In Taiwan many of the companies that once were leaders in anonymous production have slowly developed high-quality products under their own names, notably Acer, Asus and HTC. The most glaring impediment to creating the same kind of operation in China is the country’s weak intellectual-property protection. Why invest in design or innovation when the results can be knocked off by competitors? Aware of this barrier, the government has passed new laws and has been vocal in supporting greater protection, but settlements remain trivial and enforcement patchy. Most Chinese patents granted to domestic applicants are still of a type known as “utility model” patents, mainly awarded for incremental improvements, rather than for innovation or new designs (see chart 3).

China must learn to respect the IP of other companies and countries. Until they do that they will never be seen as credible. Unfortunately they don't see it that way. And as the above notes this has not helped stimulat their abiity to innovate.

Anyway, its a good article. Link is below.

The Economist: Time to change the act

Looking to Interview Tech Professionals in Taiwan

I am looking to interview foreign technology professionals working in Taiwanese High Technology companies for an MBA thesis I am working on. The thesis is focusing on how Chinese culture has influenced strategy in Taiwanese High-Tech firms.

If you have worked in a Taiwanese technology for 5 years or more, are a foreigner or a Taiwanese person who has been educated overseas and are willing to be interviewed, please send me an email @ durbanbay(at)yahoo.com.

Asustek Suffers first Quarterly Losses

Currency variations, overly optimistic forecasts and inventory writeoffs resulted in Asustek reporting their first quarterly losses. Taiwan News reports:

Asustek Computer Inc., the world's largest supplier of boards that connect computer parts, posted its first quarterly loss after the global recession reduced demand and foreign-exchange declines eroded earnings.

The fourth-quarter net loss was NT$2.8 billion (US$82 million), compared with a revised profit of NT$6.6 billion a year earlier, Taipei-based Asustek said in a statement today. The company was expected to post a deficit of NT$2.9 billion, according to the median of five analyst estimates.

Asustek missed its low-cost Eee notebook computer and standard laptop shipment targets, while sales of motherboards fell more than forecast on the deepening global recession. The company's earnings were reduced by as much as NT$2 billion by the dropping euro, in which most of its revenue is paid.

"Their own forecasts were too high, they were too aggressive in the outlook," said Bamboo Lin, who rates the company "sell" at Sinopac Financial Holdings Co. in Taipei. Lin estimates larger rival Acer Inc. overtook Asustek's market share in the low-cost notebook market during the period.

Asustek was forced to write off excess inventories of computer monitors and laptops during the period, while a falling euro, which accounts for half its sales, also reduced earnings.

"The worst has probably passed," David Chang, chief financial officer, said at an investors' conference today. The company is "disappointed" with the results, he said.

Asustek said it plans to ship 1 million Eee PCs, 800,000 standard laptops and 4.5 million to 5 million motherboards in the first quarter. Last year, it shipped 4.9 million Eee PCs, 5.9 million laptops and as many as 23 million motherboards, according to the statement.

Fourth-quarter Eee PC shipments of 1.4 million to 1.5 million were lower than the company's Oct. 30 target of 1.6 million to 1.8 million. Asustek shipped about 15 percent fewer standard notebooks than forecast, it said in a statement Jan. 8.

Managing foreign currency risk is always an issue. We have seen Toyota in Japan has also been exposed to a strengthened Yen which has helped contribute their dismal earnings. For Asustek, a weakening Euro has had a large negative impact on their earnings since 50% of their business is there. They could use some financial instruments (e.g. forward contracts) to hedge against the risk. It would be interesting to see what their foreign exchange risk management policies are.

Also, from the article it was interesting to see that Acer passed Asustek in the low cost notebook market. Acer and Asus are traditional rivals and it isn't too surprising Acer has taken over. It is unfortunate for Asustek they lost their first mover advantage, but one would imagine they will still be strong in this sector.

Of course the largest cause of concern for Asus would be a drop in demand which reflects the broader economy and shows consumers are becoming more conservative in their spending habits and are probably considering electronic products to be luxuries. Sustaining demand in this economy might be impossible for Asustek (and other computer manufacturers) and all they will be able to do is ride out the recession.

Taiwan News: Asustek logs first quarterly loss as demand falls

TSMC Stays on Top

An interesting article on EE Times shows Taiwan's foundry giant TSMC continues to grow and gain market share. According to EE Times:

Amid the downturn, which up and which is seeing red? An analysis from FBR Capital Markets found that Taiwan Semiconductor Manufacturing Co. Ltd is looking up, but the rest are down.

According to FBR, recent checks suggest that the average foundry wafer shipment in Q 09 will be down by nearly 40 percent q-on-q (versus the historical average of down 5percent), following a 30 percent decline in Q4 08 (versus a historical average of up 5 percent). "Our current assessment for Q2 09 is for the average foundry wafer shipment to be flat to up 2 percent quarter-over-quarter (versus a historical average of up 10 percent) with the exception of TSMC, where we expect wafer shipment to be up 8 percent quarter-over-quarter."

The firm believes that TSMC has remained on track with an overall wafer shipment decline of 35 percent to 40 percent q-on-q in Q1 09, though Q2 09 wafer shipment forecasts have recently been revised up from up 3 percent to 5 percent q-on-q to up 8 percent q-on-q.

"Additionally, we believe that TSMC has gained incremental market share at AMD at the expense of Chartered Semi. Foundry checks indicate TSMC is well positioned to continue to outperform and gain market share, while demonstrating superior cost/margin structure," FBR said.

I have personally argued for a while now (not on this blog) that the economic downturn is going to force bad companies to close and the well managed companies that pay attention to scale, cost, efficiency, market share and debt/equity ratios will suffer but survive. TSMC is one of those companies that will continue to survive. It does help that they have significant market share but there capabilities and continued progress in developing and maintaining their know-how should see them through. Of course they will also suffer in the downturn, but their continued success does not surprise me. But, as a word of caution, we can never really know what tomorrow brings!

EE Times: Foundry watch: TSMC stays on top

Acer Moves into Smartphones

AFP reports from the Mobile World Congress in Barcelona that Acer is moving into Smartphones. According to AFP:

Taiwan-based computer manufacturer Acer announced a move into the mobile phone market on Monday, unveiling its first range of high-end handsets at an industry event in Barcelona.

The group, best known for its laptops, unveiled eight "smartphones" that have Internet and powerful processing and memory capabilities as well as core phone functionality.

"The smartphone market is a natural direction of our long-term mobile strategy," said chief executive Gianfranco Lanci during a press conference at Mobile World Congress.

The first four handsets are expected to go on sale worldwide in March or April, marketing manager Sylvia Pan told AFP.

The touch-screen phones, demonstrated here mostly in black with a design that resembles the top-selling Apple iPhone, will connect to the Internet via a Wi-Fi connection and run with the Windows mobile operating system.

The move illustrates two trends in the mobile phone industry: the growing attractiveness of the high-end market for "smartphones" and the arrival of traditional laptop computer makers in this segment.

The diversification strategy for Acer is clear and I wouldn't be surprised if we see more traditional PC companies moving into new market segments. From my perspective (and it is the perspective or a person who dislikes mobile phones) the concept of the telephone is changing/has changed from a simple communications device to an application rich, lifestyle device that is meant to make life easy such as mobile internet banking etc.

AFP: Taiwan's Acer moves into mobile phones