Taiwan’s high-tech firms diversify to survive

TAIPEI: Wistron Corp., a spin-off from giant PC maker Acer, is facing a simple choice: Diversify or see profit margins slowly vanish.

DIVERSIFICATION: An electronics shop employee holds up an electronic book viewer at a shop in Taipei. Wistron Corp, the Taiwan-based manufacturing arm of the world’s second-largest PC vendor Acer Corp., is facing a simple choice: diversify or see profit margins slowly vanish. It’s picking the former. — AFP photo

Like many other Taiwanese technology suppliers, the company is opting to broaden out of its established strengths.

Wistron, which gets 70 per cent of its US$13.5-billion revenue from notebook computers, is adding handheld devices, flat-panel televisions and three-dimensional TVs to its product portfolio.

“Wistron is lowering the portion of notebook computer production and raising the weighting of these new products,” company spokeswoman Joyce Chou told AFP.

Wistron is not alone. Fierce global competition has prompted Taiwanese technology companies more generally to diversify.

“Taiwanese high-tech firms mostly operate as contract manufacturers. They have to find alternatives to maintain profitability as cheaper makers emerge to depress pricing,” said Topology Research Institute vice president Simon Yang.

China, with a cheap and increasingly well-educated workforce, has proved a particular threat to the island’s hi-tech industries.

Wistron’s gross profit margin was 5.5 per cent in September 2009. Without the diversification, it would have fallen “precipitously below five percent”, said Angela Hsiang, an analyst at securities firm KGI.

HTC Corp., one of Taiwan’s leading smartphone makers, has also been widening its reach, analysts said.

In 2008, HTC launched its first phone using the Android platform developed by Google, the T Mobile G1.

To enrich its product line, HTC last year rolled out HTC Hero, its latest model featuring built-in Google mobile services, including search, maps, Gmail and YouTube.

HTC had for years made smartphones powered by Microsoft’s Windows Mobile, but now to gain a share in the mobile Internet, “HTC has to work with Google to get access to its open-source operating system”, Topology’s Yang said.

“HTC is taking advantage of strengths from both Microsoft and Google. The strategy has helped HTC become more flexible.”

Even Taiwan Semiconductor Manufacturing Co, the world’s largest contract microchip maker, is diversifying, targeting solar energy and light-emitting diodes (LEDs).

In December, TSMC announced it would buy 20 per cent of Taiwan’s Motech Industries, one of the world’s leading solar-cell producers, while also investing in LEDs through a venture capitalist.

“Compared with our (microchip) foundry business, the solar energy and LED parts are very small. But TSMC is confident that they will become part of its core business,” company spokesman J.H. Tzeng said.

The output of Taiwan’s solar-cell sector is likely to grow nearly 48 per cent this year to T$106.3 billion  (US$3.3 billion), according to the economics ministry.

“TSMC already has an advantage in technology development. It also has deep pockets. I expect it will capitalise on the new investments in a big way,” said Julian Wang, an analyst with Grand Cathay Securities. — AFP