Taiwan's electronics market continues to soar

The face of Taiwan’s electronics industry is changing. In the past, the island nation, with the same population size as Australia, has focused on original equipment manufacturing and original design manufacturing. The focus is now shifting towards a more service-oriented electronics industry.

The business leaders and governments of the world’s largest electronics exporter believe that continued wealth generation requires a new industrial model that is less dependent on primary energy and material inputs. This change in strategy was evident at Taitronics, the electronics show that featured over 500 exhibitors and attracted around 45,000 people from over 90 countries. Some of the buzzwords at the show were the Internet of Things (IoT), wearable electronics, smart home and cloud technology, e-commerce and green electronics.

The nation’s IC design industry is adjusting and adapting to global trends - the country’s most important product line is gradually shifting from chipsets for smartphone and tablets to the IoT, according to Taiwan’s non-profit research and development organisation Industrial Technology Research Institute (ITRI) and Industrial Economics & Knowledge Center. “Currently, the advanced process is 32 and 28 nm, and it is moving toward 20 nm. The chipsets for smart handheld devices are still the largest component of the industry’s top line, but 4G and cloud will continue to drive demand growth for mobile device and wearables.” The nation’s IC design industry is expected to generate a turnover of NT$557.5 billion this year, up 15.9% from 2013.

Taiwan is still the world’s largest producer of tablets, but the growth momentum is expected to weaken because of the lower demand. The local companies, therefore, intend to strengthen investment in components and improve manufacturing capabilities. Taiwan’s tablet industry is expected to achieve revenue of NT$928.6bn this year.

The other key market that the nation’s electronics businesses intend to tap into is wearable devices. The hardware architecture of wearable devices is similar to smart handheld and IoT devices and Taiwan’s OEM/ODMs are hoping to get a bigger piece of this market over the next few years. The local suppliers have already launched components, including microprocessors/baseband, sensors, displays and batteries for the wearables market. Similarly, local device manufacturers have introduced smart glasses, smart watches, clothes and bands.

Green electronics is also a big focus. A number of new products are launched each year, leaving behind a large number of unwanted and unused products. “The manufacturing of new products places an enormous burden on the environment. An estimated 80% of the environmental impacts of an electronic product are determined in the design phase from the consumption of energy and other resources, such as water to waste generation and the release of hazardous substances. The resource consumption associated with creating a new electronic device is far greater than any gains from more efficient design,” according to The Taiwan External Trade Development Council, TAITRA.

More than US$1 trillion a year is expected to be generated globally by 2025 and 100,000 new jobs created over the next five years, if companies encourage the building up of circular supply chains to increase the rate of recycling, re-use and remanufacturing, according to TAITRA.

Taiwan’s economy relies heavily on exports, particularly electronics. The country’s export orders reached $43.3 billion in September 2014, a YOY increase of around 12%. The total electronics exports - the largest export industry - increased by 19.4% to US$11.5bn in September 2014. China is Taiwan’s largest export market that accounts for 40% of the island’s total exports, followed by the US, Europe, Japan and Southeast Asia. The sheer size of the Chinese market and comparatively low costs has attracted a number of Taiwanese electronics businesses to set up a manufacturing base in mainland China. One such company is Taiwan-listed manufacturer of terminals, connectors and wiring accessories, KS Terminals. The company, with a turnover of US$90 million, has manufacturing facilities in China as well as Taiwan. While the products manufactured in China are primarily sold in China, the products made in Taiwan are sold in Taiwan and exported all over the world.

While China remains the preferred factory of the world, some Taiwanese companies are moving manufacturing back to Taiwan. The world’s largest contract chip manufacturer, Taiwan Semiconductor Manufacturing Company, is considering moving production back to Taiwan. The labour costs in Taiwan are currently higher compared to China but the company hopes to achieve cost efficiency in the long term. Manufacturing locally will also provide the company a far better control of the entire process and quality.

TSMC has manufacturing experience of 30 years and revenue of US$83 million. The company is focused on telecom, consumer, automotive, military and industrial markets. It is also working on IoT-related solutions. It recently announced its “first and most comprehensive ultralow-power technology platform aimed at a wide range of applications for the IoT and wearable device markets that require a wide spectrum of technologies to best serve these diverse applications. In this platform, TSMC offers multiple processes to provide significant power reduction benefits for IoT and wearable products and a comprehensive design ecosystem to accelerate time to market for customers.”

Connected devices are changing the world and the way the companies do business. Chunghwa Telecom, Taiwan’s largest telecommunications provider, expects huge opportunities from the IoT and smart devices. Chunghwa also signed a deal with Intel for development of IoT-related technology in mid-2014.

GW Instek, founded in 1975, is a Taiwanese manufacturer of electrical and electronic test and measurement instruments. The company claims to be the largest manufacturer and developer of test and measurement instruments in Taiwan. GW Instek’s latest compact oscilloscope GDS-300/200 series won the gold award at 2014 Taitronics Technical Innovation Awards. These oscilloscopes introduce a 7″ capacitive full touch panel LCD that can be positioned in portrait and landscape display. The recharging-battery design makes the series easy to operate for field operations. The oscilloscopes are suitable for use in laboratories, research and development, large electric system tests, power product tests, motor tests, solar power battery inspection and repair, and for maintenance personnel who are always on field assignments. The series, with two analog signal input channels, have advanced and standard models which come with 70, 100 and 200 MHz bandwidth. The maximum sample rate per channel is 1 GSa/s and memory depth is 5 Mpts. The GDS-300 series oscilloscopes are equipped with 50,000 counts DMM and the GDS-200 with 5000 counts DMM that can simultaneously measure and monitor AC and DC voltage and current, and temperature.

GW Instek’s test and measurement products are sold across the world - in Australia, China, US, Europe, Japan, Korea and Southeast Asia. Another company that has been sheltered from attention but has a substantial customer base in Australia is Taiwanese test and measurement company Standard Electric Works, established in 1973. The company sells its products in Australia through CapTech, Nesco, Wattmasters, Power Parameters and Wavecom. Its most popular products in Australia include insulation testers, cable tracers and non-contactable voltage detectors. With a strong focus on innovation, the company introduces around 5-10 products each year.

The country’s businesses and government place a strong emphasis on research and development. With increasing global competition for business and talent, the Taiwanese government has made it a top priority to devise policies to spur greater innovation and recruit more professionals, according to Premier Jiang Yi-huah.

Some businesses have expressed concerns that the R&D expenditure tax credits do not benefit those companies that have not started making profits. “Other businesses bemoan the huge loss of talent to overseas firms offering higher salaries,” Ministry of Economic Affairs (MOEA) officials said. “To help businesses retain talented employees and encourage them to introduce new and more competitive technologies, the MOEA has drafted this amendment, allowing the deferral of income tax payments (under certain conditions) for employees that are rewarded with stocks, or technology patent owners that form partnerships with companies as stakeholders.”

To summarise, the global electronics market is in the midst of a massive transformation and Taiwanese businesses seem to be ready to capture the opportunities and take the challenges head on. What could Australia learn from Taiwan? Refocus on design and innovation, seize opportunities before it is too late, manufacture low-volume products locally and outsource high-volume manufacturing to overseas suppliers in comparatively cheaper markets such as Taiwan.