Taiwanese Firms Struggle in Vietnam

Over the past few years more and more Taiwanese firms have moved to Vietnam. China is becoming an increasingly unattractive investment destination and many multinational companies, including Taiwanese companies, have adopted a China + 1 strategy, which means finding alternative countries with a cheap labor base to develop their manufacturing plants. Many Taiwanese companies have moved some of their manufacturing to Vietnam however, this is becoming and increasingly fraught strategy.

Earlier in the year Taiwan firms were warned about Vietnam by the Taiwanese government. A dramatic devaluation in the Dong and an unstable economic environment was the main point of concern. However, some companies such as Mitac and Compal decided to continue to invest in Vietnam regardless of the deteriorating situation. However, not all companies have.

The investment environment in Vietnam has continued to deteriorate. An annual inflation rate of 27% in July led to widespread strikes from workers battling to make ends meet and fighting for increased wages. The China Economic News (CENS) writes (emphasis added):

Many Taiwanese enterprises in Vietnam are striving to cope with the thorny problem of labor strike, as Vietnamese laborers suspended their works seeking better pays, in order to compensate soaring commodity prices.

The most serious spot is Don Nai province, where 44 foreign enterprises, including 27 Taiwanese-invested ones, in a major industrial zone were paralyzed by labor strikes at the end of July, over 10 of which are still mired in the problem now.

Don Nai boasts the largest amount of foreign investment in Vietnam and the said industrial zone is the third largest spot where foreign investors cluster, trailing Ho Chi Minh City and Hanoi.

The labor strike problem is not confined to Don Nai Province. In fact, over 100 Taiwanese enterprises have been hit by illegal strikes so far this year. The Department of Investment Services, the Ministry of Economic Affairs, reported that in the first five months in southern Vietnam alone, over 280 strikes broke out, of which 55 involved Taiwanese enterprises. Even hi-tech enterprises boasting better pays and fringe benefits were not immune from the problem.

As a result of these concerns, a number of tech companies, including Chi Mei, have recently decided to halt their investments in Vietnam. Reuters says:

Chi Mei Optoelectronics Corp, Taiwan's No.2 LCD maker, said its plan to reduce output in an industry downturn remained unchanged, and it has suspended a plan to build an LCD module factory in Vietnam. A company official confirmed on Friday a local newspaper report that Chi Mei President Ho Jau-yang said on Thursday his company's previous plan to cut production of liquid crystal displays (LCDs) has not been changed.

Two weeks ago, Chi Mei said it would follow the lead of several peers, such as AU Optronics Corp , and cut its output in the third quarter by about 15 percent from the second quarter after demand for PCs and flat-screen TVs slowed.

But Ho said the display market could have hit a bottom in July and demand is picking up this month.

Chi Mei has also decided to suspend a plan to build an LCD module assembly plant in Vietnam, said the official, who delined to be named.

The Standard provides some additional insight stating:

Chi Mei had planned to build a factory to assemble LCD modules in Hanoi in 2010, Denis Chen, said director of finance and accounting at Tainan-based Chi Mei.

Vietnam's annual inflation quickened to 27 percent in July, the fastest pace since at least 1992.

Chi Mei joined companies including Sony, the world's second-largest television maker, in delaying or pulling out of investment in Vietnam. The Taiwanese company said last month it will lower its LCD output by 15 percent in the current quarter from the second after oversupply drove down prices.

This case is a very good example of the country risk all foreign direct investments (FDI) are exposed to. A few years ago Vietnam seemed to be an attractive place for investments but now the situation is increasingly unstable. The situation can be stabilized through proper fiscal policies by the government and the situation reversed in the coming months and years, but right now companies will be looking at other places in which to invest (maybe Cambodia, maybe Laos).

Of course one can sympathize with the workers who are trying to raise families and have their own hopes and dreams in this life. One only hopes that their protests will not create irreparable damage to the economy and to their future opportunities. The Zimbabwe in this world is enough!

References:
CENS: Taiwanese Enterprises in Vietnam Plagued by Labor Strikes
Reuters: Chi Mei keeps LCD output plan, Vietnam plant on hold
The Standard: Chi Mei to delay Vietnam project

Japanese Companies Outsource LCD Production

Trading Markets reports Sony and Toshiba will both outsource some of the production of their LCD screens to Taiwanese elecronic manufacturing services (EMS) companies. Sony will outsource to Hon Hai and Toshiba to Compal. Trading Markets writes:

While both firms will continue making LCD TVs at their own factories, they intend to meet the growing demand by using EMS (electronics manufacturing services) firms in Taiwan, the business daily said.

Their strategy stands in sharp contrast to that of Sharp Corp and Matsushita Electric Industrial Co, which are focusing on maintaining their technological superiority by making LCD panels and TVs themselves.

Sony farmed out production of some 500,000 LCD TVs to Taiwanese firms in the year to March 2008, but it now aims to boost the figure to more than 3 million in the year to March 2009.

Tokyo-based Sony has signed a contract with the Hon Hai Precision Industry group, the world's top EMS provider, the report said.

Toshiba has contracted out LCD TV production to Compal Electronics Inc, which will make slightly more than 20 percent of Toshiba's estimated 7 million planned LCD TV shipments in the year to March 2009.

While both firms will continue making LCD TVs at their own factories, they intend to meet the growing demand by using EMS (electronics manufacturing services) firms in Taiwan, the business daily said.

Their strategy stands in sharp contrast to that of Sharp Corp and Matsushita Electric Industrial Co, which are focusing on maintaining their technological superiority by making LCD panels and TVs themselves.

Sony farmed out production of some 500,000 LCD TVs to Taiwanese firms in the year to March 2008, but it now aims to boost the figure to more than 3 million in the year to March 2009.

Tokyo-based Sony has signed a contract with the Hon Hai Precision Industry group, the world's top EMS provider, the report said.

Toshiba has contracted out LCD TV production to Compal Electronics Inc, which will make slightly more than 20 percent of Toshiba's estimated 7 million planned LCD TV shipments in the year to March 2009.

The price competition for these products is becoming more intense and the companies will have to find ways to cut their costs. Outsourcing may be their only option.

Trading Markets: Japan's Sony, Toshiba to farm out more LCD TV output - report

Taiwan Tech Index: August 15

Below is a table of the movement of the share prices of companies listed on the TSEC Taiwan Technology Index between the closing price on 8 August and 15 August. Of the 56 companies listed on the TSEC Taiwan Technology Index, 30 went up and 26 went down. Some of the highlights follow.

Increases

• Compal - The biggest winner as seen below was compal rising 25.97%. This was on the back of some big orders from Dell computers as noted in News from the Notebook Market.
  
• Ritek - Ritek was the other big winner increasing by 21.16%. Ritek's big news this week was their movemet into solar cells. Ritek also announced they will be doubling their Blu-ray recordable disk (BD-R) production.


• Lite-ON Tech. - Lite-On Technology prices went up more than 13%. This after they announced improved profitability in 2H and saw strong revenue growth in July.


• VIA - VIA saw a 10% increase in price. VIA this week announced they will move out of the third-party chipset market. They also landed NANO CPU orders from HP.

Declines

• ASE - Andvanced Semiconductor Engineering (ASE) saw a 9.83% decrease in the share price. This reflected a 6% decrease in profit in Q2.


• Mitac - Mitac shares declined by more than 8% on the week reflecting 48% decline in pretax profits. On Friday (15 August, 2008) their shares dropped a whopping 12.44%..

Interesting

• Innolux - Innolux Display share prices dropped12% on Thursday (14 August) and 4% (15 August). This after their shares increased almost 6% a day for four days. Their shares still managed to rise 1.35% on the week. The dramatic drop reflected the announcement of flat earnings in Q2.

The table below shows the cha nges

Company	Change
Compal	25.97%
Ritek	21.16%
Lite-On	13.28%
VIA	10.00%
Sunplus	9.12%
Novatek	8.18%
Micro-Star	7.61%
Kinsus	6.94%
Lite-On IT	6.39%
Cybertan	5.81%
Mosel	5.50%
Clevo	4.95%
CMC	4.62%
Chi Mei	4.24%
Qisda	3.78%
King Yuan	3.58%
Realtek	3.13%
Hon Hai	3.07%
Winbond	3.07%
Advantech	3.01%
HTC	2.81%
Formosa Advanced	2.67%
Transcend	2.58%
Greatek	2.53%
Chicony	2.52%
Faraday	2.39%
Ali	2.23%
Macronix	1.84%
Chunghwa	1.65%
Elan	1.38%
InnoLux	1.35%
AUO	1.33%
Powertech	1.01%
Foxconn	0.92%
Acer	0.62%
Inventec	0.58%
Global	0.45%
TSMC	0.17%
Wistron	-0.41%
D-Link	-0.82%
Nanya	-0.85%
HannStar	-0.98%
MediaTek	-1.11%
Quanta	-1.29%
Zinwell	-1.42%
Tatung	-1.71%
Compal	-2.03%
UMC	-2.20%
Elitegroup	-2.53%
Asustek	-2.76%
SPIL	-2.85%
Synnex	-3.86%
Inotera	-4.21%
Richtek	-5.02%
Zyxel	-6.39%
WPG	-6.49%
Mitac	-8.21%
ASE	-9.83%

Method of calculation. The movement is calculated by finding the difference between the previous week's Friday close and this week's Friday close and then dividing the difference by the previous week's Friday close and multiplying by 100 to get a percentage. All closing figures are taken from Yahoo Finance.

Taiwan Science Parks to Generate NTD3 Trillion by 2011

Staggering figures from the National Science Council estimate more than 50% growth in production value from the three major science parks in Taiwan. They estimate the production value this year is around NT$1.222 trillion (about US$40 billion)and will be NT2.178 trillion (approximately USD70 billion) for the year. They expect this figure to grow to NTD3 trillion (USD100 billion) in 2011. That is large growth. The China Economic News writes:

With stable production growth, Taiwan`s big three science parks, namely Hsinchu Science Park (HSP), Central Taiwan Science Park (CTSP) and Southern Taiwan Science Park (STSP), are expected to generate aggregate production value of NT$3 trillion in 2011,the Cabinet-level National Science Council estimated.

Despite an economic depression in the world this year, the three science parks still posted a total of NT$1.222 trillion in overall production value in the first half of the year, up 17.16% from a year earlier. The combined annual production value is likely to hit an all-time high of NT$2.178 trillion for entire this year.

Separately, the IC (integrated circuit) industry in the three science parks contributed the largest portion of NT$485.5 billion, or 47.5%, to the total production value for the first half, up 6.46% from a year earlier. The optoelectronics industry infused NT$451.9 billion, or 44.22%, into the total, sharply up 37.12%, in the same span.

In the second half, a couple of semiconductor manufacturing companies, such as Taiwan Semiconductor Manufacturing Co. (TSMC), Vanguard International Semiconductor Corp., and Powerchip Semiconductor Corp., will boost their investments in HSP to NT$450 billion in HSP. Also, TSMC and United Microelectronics Corp. are planning to set up 12-inch wafer fabrication plants in STSP.

In the meantime, optoelectronics firms, including Innolux Display Corp., Chi Mei Optoelectronics Corp., Wintek Corp. and Toppan CFI Taiwan, will carry out capacity expansion at their display panel plants in the three parks.

According to National Science Council, in 2011, an estimated 800 companies with a total of 300,000 workers will operate in the three science parks, generating production value of up to NT$3 trillion that year.

Considering these parks were just a dream 35 years ago, their growth has been impressive.

China Economic News: Production Value of Taiwan`s Big 3 Science Parks to Hit NT$3 T. in 2011

News from the Notebook Market

Acer is targeting 50% revenue growth in India through the sale of notebooks. The Business Standard writes:

PC vendor Acer expects a 50 per cent growth in its revenue from the Indian market in the current fiscal, a top company official said.

"Our revenue in the last fiscal stood at Rs 1,200-crore. This year, we expect it to grow by 50 per cent to Rs 1,800-crore,' Acer India's Managing Director W S Mukund, said on the sidelines of the launch of Aspire One notebook, the company's first Internet device in the Indian market.

The company was pinning its hope on the newly-launched product, Mukund said, adding that, "Acer is aiming to sell 75,000 units of these notebooks over the next 12-months." In the first month of the launch itself, the company is targeting a sale of 5,000 units, he said.

Compal and other downstream notebook component suppliers are expected to benefit from a new notebook model launched by Dell. The new model will be produced by Compal. China Economic News writes:

Despite a rather conservative outlook for the notebook PC market in the second half this year, Compal Electronics and a number of Taiwanese makers of notebook-PC parts and components are expected to benefit from the rollout of a brand new series of business-use NB PC by Dell Computer, the world`s second largest NB PC vendor.

Michael Dell, chief executive officer of Dell, is scheduled to unveil the new model tomorrow (Aug. 13) in New Delhi, featuring light weight and colorful design, in stark difference from conventional business-use NB PCs, which emphasize function and stability, without much variety in design.

The new model will be contract-produced by Compal Electronics and its magnesium-aluminum alloy case is likely to be supplied by Catcher Technology. Other Taiwanese components and parts suppliers for the model include Shin Zu Shing, Simplo Technology, and Dynapack Battery Pack.

Finally, Trading Markets says notebook sales have surged in China. Trading Markets writes:

China's laptop sales surged 47.5% from a year earlier to 1.897 million units in the second quarters of 2008, showed the data of CCID Consulting, a leading IT market research and consulting company.

The top five computer makers led by Lenovo Group Limited (SEHK: 0992) took 71.4% of the Chinese market.

Dual core processors have become the mainstream configuration for laptops. The hardware tended to have big screens, large capacity, and high definition. VISTA was still unable to beat Windows XP in the operating system market.

Laptops are likely to take the place of desktops in the mounting home computer market, where Dell Inc. (Nasdaq: Dell) was enlarging its share after broadening retail channels, and Samsung was consolidating its foothold after product and price adjustment.

The surge in China will definitely benefit Taiwanese manufacturers. It seems the notebook market has a reasonable future ahead.

The Business Standard: Acer targets 50% revenue growth to 1,200 cr in FY 09
China Economic News: Dell`s New NB PC Will Benefit Compal and Other Taiwanese Makers
Trading Markets: China Laptop Sales Surged 47.5% in Q2

AMD's Asset Smart Strategy: What is it?

An excellent article on the Guardian covers most of what AMD have been going through over the past couple of years. The Guardian writes:

Advanced Micro Devices Inc's future depends on still-murky details of a plan to overhaul its manufacturing, and Wall Street is impatient.

AMD now lags far-larger rival Intel Corp in chipmaking technology and could be about nine months behind Intel when it introduces chips with elements as small as 45 nanometers in the second half of this year.

The company has also reported seven straight quarterly net losses in a row, and it's hard-pressed to afford building a new, next-generation chip plant, which can cost $3.5 billion, with $5.6 billion in long-term debt on its books.

Together, Intel and AMD control virtually the entire market for microprocessors, the electronic brains of personal computers and server computers that comprise corporate networks.

AMD's future hinges on what it calls Asset-Smart strategy: whether it adds capacity by striking a deal to use foundries of an Asian contract chipmaker such as Taiwan Semiconductor Manufacturing Co Ltd, or perhaps signing an agreement with longtime partner International Business Machines Corp.

"I don't know what Asset-Smart looks like, but anything is better than today. Anything is better than going out of business because you run out of money" said Stifel Nicolaus analyst Cody Acree. "It might be a partnership with IBM or TSMC or it might be an outright sale of their manufacturing."

Executive Chairman Hector Ruiz, who led AMD as its CEO for more than six years and stepped aside in mid-July to hand the reins to Dirk Meyer, is driving the plan to completion and has repeatedly promised answers by the end of the year.

We have been following this story for some time and the above quotation is a good summary of the situation as it stands now. Honestly, good luck to AMD to staying in the game. I personally think much of the innovation and acceleration in product design by Intel has been because of AMD punching above their weight. Without at least a minor competitor how fast will Intel develop products? I recall earlier this year Intel wanted to delay the rollout of some processors as there was no reasonable external competition and they felt the newer processors would compete directly with their earlier generation of processors. They denied the rumor but it wouldn't be out of the realm of possibility. Ultimatey this doesn't benefit the consumer.

Also, the brutal price war between AMD and Intel has signifcantly lowered the prices of processors. If AMD are pushed out of the game, Intel will monopolize the market (haven't they already?) and set prices as they please similar to what Mircrosoft does.

So seriously, here's hoping AMD can pull out of their slump and get back in the game, with or without fabs.

Guardian: AMD manufacturing plan key to chipmaker's future

TSMC Increases Their CAPEX

EE Times writes TSMC has decided to expand their CAPEX for to develop their 45 nm and 40 nm processing technologies. Some of the CAPEX will also be used to upgrade their equipment. EE Times writes:

The board of Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) has approved a $795 million capital spending plan that includes a push into 45-/40-nm CMOS processes and MEMS.

The spending is part of TSMC's previously-announced capital expenditure budget for 2008. For year 2008, total capital expenditures for TSMC is expected to be around $1.8 billion, compared with $2.6 billion spent in 2007.

On the leading-edge front, silicon foundry giant TSMC said it has approved the appropriations of $687.60 million to expand its 45- and 40-nm manufacturing capacity within its 300-mm fabs. TSMC recently rolled out these processes.

The company has also approved capital appropriations of $107.40 million in 200-mm fab equipment. It will upgrade a portion of its 0.18-micron logic process capacity to 0.11-micron CMOS image sensor technology, 0.11-micron logic, 0.13-micron high voltage, and 0.18-micron RF.

EE Times also notes TSMC's expansion into the Microelectromechanical System (MEMS) fabrication (we previously commented on this in Taiwan Manufacturers Move into MEMS market). According to EE Times:

In addition, the appropriation will also be used to upgrade a portion of its 0.35-micron logic process capacity to MEMS processes.

TSMC (Hsinchu) has been involved in MEMS foundry production for some time, but the company is expanding its efforts in the arena--and for good reason: MEMS is growing at an annual rate of 13 percent, according to the company.

Within its fabs, the company is devising several MEMS products on a foundry basis for customers, such as inkjet devices, sensors, RF MEMS and displays. It is developing several processes in the arena, such as bulk MEMS, surface MEMS and a CMOS-MEMS integration technology.

Unsurprisingly UMC, TSMC's main competitor, is also jumping on the MEMS bandwagon.

EE Times: TSMC hikes capex for 40-nm, MEMS