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