Motorola Affecting Downstream Suppliers

Taiwanese suppliers to Motorola are being heavily impacted by Motorola's poor performance. Motorla's shares recentely tumbled to a 52-week low on Friday to $8.98, 43% down from the a beginning of the year according to IT Portal. IT Portal also says:

Its [Motorola's] mobile phones, which once made up almost a quarter of the global market, are now accounting for less than 1 in every 11 handsets sold and has been overtaken by Samsung electronics; meanwhile smaller competitors like LG Electronics are also catching up.

China Economic News (CENS) points out that this has severely affected Taiwanese suppliers. CENS reports:

In the first quarter of this year, Motorola shipped only 27.4 million mobile phones, sharply down 40% from 45.4 million units posted a year earlier. This has heavily undermined the business operations of its Taiwanese contract suppliers, including Compal Communications, Chi Cheng, Largan Precision Co., Foxconn Technology Group, Silitech Technology Corp., Merry Electronics Co. and Unimicron Technology Corp, especially Compal Communications and Chi Cheng, which both have over half of their total revenues come from sales to Motorola.

One company that has felt the pain of Motorola's non-performance is Wintek. In Q1 2007 Wintek were severely affected by Motorola's non-performance and what Digitimes calls "Motorola's inventory issues." However by diversifying both their client and product portfolio they were able to grow their March sales by 31.97%. According to Digitimes:

Since then (Q1 2007), Wintek has actively developed other applications, such as touchscreens, PNDs and digital photo frames, and has acquired its second 3G LCD panel line from HannStar Display. Its first 3G line also came from HannStar.

With the addition of new orders and new clients, Wintek was able to reduce Motorola's proportion in its first-quarter sales, industry sources said.

Despite this growth in sales, Wintek's stock has also suffered some pain over the last year. From trading at nearly NTD50 per share, the stock dropped to nearly NTD26 and is now trading at around NTD30. The effect of Motorola's non-performance on Taiwan companies does seem to be large. It seems the other companies will have to try and do what Wintek did and find new clients and new growth markets. Here is hoping they succeed.

Article 1: Motorola shares fall to their all time low, could be downgraded
Article 2: Motorola`s Tumbling Sales Hurt Its Contract Suppliers in Taiwan
Article 3: Wintek March sales grow almost 32%

AMD Targets Small and Medium Businesses

Interesting report in from the Wall Street Journal (WSJ) on AMD's realigned business strategy to target small and medium sized businesses. WSJ says:

The Sunnyvale, Calif., semiconductor company on Monday expects to unveil an initiative -- code-named Hardcastle and now renamed AMD Business Class -- that comes with a "platform" of chip technologies to help PC makers build machines tailored to the needs of smaller companies. AMD's effort is based around its Athlon and Phenom microprocessors, which come in models with two, three or four electronic brains, as well as accessory products called chip sets that AMD has offered since its 2006 purchase of ATI Technologies.

According to WSJ:

All the major PC makers "are lining up," said Hal Speed, an architect in AMD's desktop division. "We're definitely looking to take market share."

The AMD site says:

AMD Business Class technology was designed with business in mind to deliver the best value on the market. These specially engineered platforms offer the features and price points that meet the needs of today’s business computer buyers, from multinational enterprises to small businesses.

AMD Business Class technology provides exceptional business value by providing a solid, reliable foundation for systems that offer industry-leading stability and longevity, exceptional performance and energy efficiency, and essential security and manageability.

It seems they are just repackaging what they already have. Maybe they can steal some market share, but it will be hard.

WSJ Article: AMD Sets Major Pitch For Small, Midsize Firms
AMD Site: AMD Business Class: Designed with Business in Mind

Will the DRAM Market Recover?

Recently there are reports the DRAM market is on the way to recovery. There is a general level of optimism the market has bottomed out and the only way forward is up. Digitimes says after suffering from severe Q1 losses in 2008, Inotera and Nanya are being more optimistic about the market in Q2. Both companies believe DRAM prices are set to rise. According to the article:

Pei-Lin Pai, Nanya company spokesperson and vice president of global sales and marketing, said inventory at contract customers is tightening. Therefore, Nanya is preparing to raise its quotes by over 10% in the first half of May. An increase in customers adopting 2GB modules built on 1Gb chips is the major reason for the the improvement, Pei explained.

Inotera company president Charles Kao also thinks the DRAM industry is warming up and says they will complete their switch to their 70 nm manufacturing plant in July. In a separate Digitimes article, the chairman of Powerchip Semiconductor Corporation (PSC) Frank Huang said he believed the worst was over. According to the article:

The price of 1Gb DDR2 is likely to stabilize at US$2 in May, and if pricing can surpass US$2.50, the company [PSC] will swing to profit.

This optimism is shared by DRAMExchange. According to them the market can is expected to rise. Commenting on recent trends they said:

Prices posted a surge on April 21, as evident in the 5.32% and 6.69% single-day appreciation for DDR2 1Gb 128Mx8 eTT and 512Mb 64Mx8 eTT. As magnitude of growth is rapid, sellers thus being conservative to release their stocks.

Most DRAM companies have experienced difficulties over the past year or so. The cause of the problem was oversupply when Windows Vista was launched. Vista uses a lot of memory and therefore, to prepare for the launch of the OS, many DRAM manufacturers went into overdrive on production. However, the low adoption rate of Vista by the industry meant there was an excess in the supply of DRAM modules. Standard economic dictates this would drive down the price. And so it did.

Most DRAM companies have felt the pain over the last year. Many of them have been hanging in and fighting against the tide. Hopefully for them the future is bright. For the consumer however DRAM modules will probably become more expensive.

Article 1: DRAM pricing warming up, say Inotera and Nanya
Article 2: DRAM industry over the worst, says PSC chairman
Article 3: DRAM Price momentum to shoot up from June

WiMAX Explosion in Taiwan

Yesterday we noted Intel's commitment to investing US$500 million in Taiwan's WiMAX industry. Apparently the commitment is even deeper than that. Intel are also committing to entering in joint ventures with Taiwanese companies to develop broadband networks on the island. China Economic News (CENS) has more:

Intel will spend US$500 million over the next five years ending in 2013 on its WiMAX investment and procurement of the equipment in Taiwan, in addition to its original pledge to invest an undisclosed amount of capital to open WiMAX joint venture in Taiwan, according to an Intel top executive.

Intel Executive Vice President Sean Maloney noted the procurement items would include WiMAX chips and consumer premise equipment. Taiwanese suppliers likely to benefit from the procurement deal include MediaTek Inc., Faraday Technology Corp., GemTek Technology Co., Ltd., D-Link Corp. and Zyxel Communications Corp.

In reaction, CENS reports that President elect Ma Ying Jeo has committed to attending the WiMAX trade show to be held in Taiwan in June. In the same article CENS reports Intel has opened a WiMAX office in Taiwan and also notes the following observations:

Taiwanese industry watchers estimate the latest and previous commitments to cost Intel around NT$20 billion (US$666 million at US$1:NT$30) in investment capital.

The joint venture will assess plans to put money into Taiwanese network-communications equipment makers and WiMAX-service providers. Taiwanese companies of both sectors reported to receive the investment capital include GemTek, D-Link, Tatung InforComm Co., Ltd., First International Telecom Co., Ltd., and Global Mobile Corp. However, Intel said it was still assessing.

In a separate article CENS observes that the Taiwan government is trying to get 8 million on-island WiMAX subscribers during 2008. According to CENS:

Taiwan has been actively engaged in developing WiMAX (worldwide interoperability for microwave access) network technology, and planned to have a total of 8 million users of services based on the technology by the end of this year, according to Chen Chao-yih, director general of Industrial Development Bureau (IDB) under MOEA.

PC manufacturers are also getting on this bandwagon. Digitimes noted yesterday that Acer is currently testing WiMAX enabled notebooks that they hope to launch in June. The notebooks will be based on the fifth-generation Centrino code-named Montevina.

WiMAX is going to change the world no doubt. It provides added wireless convenience and enables easy connectivity over long distances. One wonders though what the packages will be like. The push towards WiMAX in Taiwan is not surprising. Under now president elect Ma Ying Jiou Taipei became the worlds first wirless city in 2006 with thousand of Wi-Fi nodes distributed throughout the city. However, as noted by the New York Times, the system had a very low adoption rate in the beginning. Of course WiMAX's big advantage is the bandwidth and the speed with which data can be dowloaded. But still, how will it be packaged?

Article 1: Intel Pledges to Up Ante On Taiwan`s WiMAX Biz
Article 2: Taiwan Aims to Attain 8 M. Users of WiMAX in 2008
Article 3: Acer to launch WiMAX-enabled Montevina-based notebooks in June-July
Article 4: What if They Built an Urban Wireless Network and Hardly Anyone Used It?
Website 1: WiFly Website
Website 2: WiMAX Show Website

Growth of Low Cost PCs

ASUSTek has recently launched an 8.9-inch Eee PC. China Economic News (CENS) predicts shipments for these products will reach 1.3 million in Q2 and 5 million for the year. CENS notes this is ASUSTek's first low cost Intel platform. Intel however do have a competing product yet, according to CENS:

Asustek indicated that Intel, though already launching Classmate PC, a competing model against Asustek`s Eee PC, concentrates more on its sales of CPU (central processing unit) and hence has helped Asustek garner numerous governments` tender projects so far.

Digitimes notes that ASUSTek is very optimistic about these products and plan to launch a 10-inch display model later in 2008. Digitimes also notes that while ASUSTEk is aggressively pursuing this market, other players are being far more conservative.

Asustek is believed to have ordered 2.5-3 million Atom processors from Intel, while Acer has ordered around one million and may place another one million unit order depending on market demand for corresponding low-cost PCs in the later half of the year, according to industry sources. Meanwhile, Dell has been more conservative in only ordering around 300,000-500,000 Atom CPUs, while previous reports indicate Hewlett-Packard (HP) has placed an initial order for 100,000 VIA Technologies C7-M ULV CPUs to be used in its Mini-Note products, which will increase to 500,000 units by year's end. Other players including Micro-Star International (MSI) and Gigabyte Technology are even more conservative, ordering far lower volumes than their competitors, according market watchers.

Low cost PCs are also breaking into the industrial PC market with Digitimes reporting that Nexcom will also be launching a medical tablet PC based on the Atom processor.

Watching the growth of this market sector will be interesting. Currently 50% of all demand is in Europe and it will be interesting to see how the regional mix changes over the next year or so. I am personally thinking of buying one of these low cost PCs. I think they are perfect. Light, easy to carry and easy to hook-up to a big external hard drive at home. I guess the real question is why do you need to carry all the storage capacity you don't really use or access? Of course some people will prefer the high-end notebooks but these low price PCs are definitely carving out their own market sector.

Article 1: Asustek Unveils 8.9-inch Eee PC
Article 2: Intel Atom-based Eee PCs in June, 10-inch displays later in the year, says Asustek president
Article 3: Nexcom planning Atom-based industrial tablet PCs

Quanta and ACER get behind WiMAX

Recently Digitimes noted the formation of a WiMAX consortium here in Taiwan. According to Digitimes:

Four Taiwan WiMAX licensed operators – Global Mobile, Vastar Cable TV System, Tatung Telecom and First International Telecom (Fitel) – on April 15 formed the Consortium of Mobile Broadband (CMB) with an aim to facilitate the development of the WiMAX industry in Taiwan.

China Economic News (CENS) reported shortly thereafter that Taiwanese PC manufacturers are supporting the WiMAX standard. CENS reported:

Taiwan's top two PC makers-Acer and Quanta Computer-recently joined the island`s telecom providers to form an alliance christened "Consortium of Mobile Broadband (CMB)" to promote WiMAX technology.

The article continues:

Industry watchers on the island said the allying suggests that makers of network-communications equipment PC makers have emerged as another major force pushing the formation of the next-generation mobile industry in Taiwan.

Intel has is also getting behind the development of WiMAX in Taiwan. Reuters reports:

Intel Corp said on Monday it will invest $500 million in Taiwan over the next five years, with a large amount of the investment targeted at the island's WiMAX sector.

As I also noted last week, at the top of NEC's procurement list were WiMAX components. WiMAX is growing in Taiwan.

Article 1: Taiwan licensed WiMAX operators form consortium
Article 2: Taiwanese PC Makers Join WiMAX Camp
Article 3: Intel to Invest $500M in Taiwan to Boost WiMAX
Previous: NEC to Purchase Components Worth Three Billion USD
About WiMAX: WiMAX Forum, Wikipedia

Taiwanese Firms Moving to Vietnam

China Economic News (CENS) continues to update on Taiwanese firms moving to Northern Vietnam. (See Vietnam the new Promised Land) In an article posted Friday (April 18) CENS says:

To ease the impact of skyrocketed production costs in mainland China, Taiwanese firms operating there, including those form the electronics and conventional industries, are rushing to move operations to northern Vietnam.

The relocation move such leading electronics as Hon Hai Precision Industry Co. and Compal Electronics Corp. is expected to encourage more Taiwanese firms to do so in the second half of this year. Taiwan`s top-five electronics firms have all set up production facilities in the northern part of Vietnam.

However, all this movement is pushing up property price in Vietnam, especially in Hanoi. The article says:

...the average land price for some industrial zones in northern Vietnam is set at 200,000 renminbi per acre, quite the same as those located in eastern and southern parts of mainland China.

I am sure we will hear more about this as time goes by. However, one should imagine that rising costs in Vietname will eventually force many companies to return to Taiwan or to expand elsewhere. I personally believe this is good for Vietnam. Much of the success of Guangdong Province in South China can be attributed to the massive investment from Taiwanese firms there. Perhaps Vietnam can reap the same benefits and their people can have an improved quality of life.

Article: Taiwanese Firms Switch Operations to Northern Vietnam From Mainland China
Previous Coverage: Vietnam the new Promised Land