Taiwan throws off a depression - Part 1

Invited by the Taiwanese government to see how some of the country’s electronic components are made, I joined an international party of journalists for a series of factory-guided tours round plants making products ranging from miniature cameras to plugs and interconnects.

There is little doubt that the world is still in recession and markets are twitchy, yet it is not all universal gloom and doom even in the electronics industry.

There is one corner of the world where, yes, there is a recession but it is a word that is whispered and if it is heard at all, no one takes much notice. The people are determined that it is the world’s problem and if they have to admit to its existence, it is something that shall go away very soon and leave them stronger than ever.

This is an impression of Taiwan, a small island almost within shouting distance of mainland China. It is an island where skills expertise, knowledge and the ability to get up and carry on are characteristics of a population that has had more than its fair share of adversity - from occupation to typhoons.

Maybe it is these experiences that have given the inhabitants a buoyancy, optimism and energy that was so obvious and clear to see on a recent visit there to look at some of the electronics being made that go into so many of our specialised and everyday pieces of equipment.

There is scarcely an electronic component that is not made somewhere in this little island, barely 400 km long by 145 km wide. There is an industry about the country. Roads are being built so that the 22 million or so inhabitants can move quickly. A high-speed railway already exists between the north and south and another is under construction in Taipei, and there is an internal air service between major regional centres.

There is an acute awareness of having to export to survive. A growing cosiness with China at both the political and economic levels does provide a doorstep market and is feeding the vastly expanding society that is beginning to taste the luxuries of the outer world. The attractions of China are encouraging the Taiwanese to bridge the Straits by setting up at least a sales office and, in many other cases, full-blown manufacturing plants.

China has played a large part in Taiwan’s fortunes and is continuing to be a strong influence on the direction the island’s electronics industry travels today. One of the major benefits to Taiwan at present is China’s thrust to rapidly modernise its rural housing using government subsidies to provide everything electronic from televisions to computers. This impetus to Taiwan’s output is good for business; however, there are other emerging markets such as Russia and Latin America that are of keen interest.

As an example of meeting the recession full on, island industry watchers expect the annual revenue of flat panels to reach $58 billion in 2009 and retain its global market share of 38%.

But this potential mass market is only part of what Taiwanese industry is striving for. Existence of its electronics industry would be impossible without exports and although China may be handy, the Taiwanese want more than just this market. They look to the world because if they don’t they have no industry. With a population only slightly larger than that of Australia, it’s export or bust - which is why almost all the companies we visited have strong international connections, including Australia.

Unlike other countries, the government actively encourages industry to perform and lowers barriers that elsewhere are sometimes seen as deliberately raised to frustrate.

Many of the companies receive not only government money in the form of subsidies and advantageous rates for building plant and equipping it with machinery but they also sell their wares to the government, which is only too pleased to support a local industry.

One of the reasons there is so much technology in such a small place is the importance all companies place on R&D. At every factory we visited we were told the same story that at least 10% plus of turnover is spent on R&D while dedicated teams of engineers and technicians do nothing else but look to the future and ensure there will be leading-edge product available as soon as possible.

One plant, for instance, reckons that it takes just 120 days to design and get into production a new plug or interconnect. This is development on the run and has ensured that Taiwan stays ahead of the pack not only in technology but in marketing as well.

Taiwan, as one of the biggest producers of flat panels in the world, has signed a major deal with China that will see US$4.4 billion worth of panels cross the Straits. At the same time, major Taiwanese makers such as AU Optronics, Chi Mei Optoelectronics and Changhwa Picture Tubes are looking to establish technical development and common standards between the two countries.

However, an order of this magnitude could be in jeopardy if an ongoing special glass shortage persists. AU and Chi Mei predict higher prices due to a 20 to 30% glass shortfall. Even so, AU has begun production at its next-generation LCD panel factory ahead of schedule to cater for a demand in its products.

Corning, the largest producer of the special glass, admits it has been caught short, explaining that demand is stronger than anticipated and is still outstripping production. According to a press report, South Korean makers Samsung and LG are less likely to feel the pinch of a shortage because they have bigger orders in place than do AU or Chi Mei.

Meanwhile, in another move to maintain the island’s technical leadership, President Ma Ying-jeou said his government is considering the possibility of allowing local chip makers to establish 12-in wafer plants in China.

Currently, there is a ban on chip makers building manufacturing plants in China for fear that Taiwan will lose its technical edge and dominance in the world semiconductor market. Only three 8-in plants have been set up there as these are thought to be less competitive than 12-in plants.

All the factories we visited were the latest in design, some with marble floors and grand entrances reflecting the prosperity of the industry. Inside they are fitted with equipment that had no scratches on the paint and no dust on the surfaces. The floors were spotless and the operators looked as if they enjoyed being at work. In one plant, for example, some of the assembly staff are given a 10-minute break after every 90 minutes on the line - so demanding of concentration is their work. Dressed in their blue overalls and blue bootees, they gathered together in the breaks and did what factory workers do all over the world - talk, eat and drink. Some of them even stayed behind after hours especially to show us what they were doing.

We were shown into lecture theatres whose luxury and fittings would make most cinemas blush. Armchairs set into a raked floor, note-taking tables built into the arms and room to stretch a leg longer than the average Chinese would need. Surround sound and a lighting system on a par with a son et lumière plus the usual overhead projectors and electronic whiteboards were the norm.

It is all part of the image of a high-tech country and it is impressive because it is not an image. It is everyday manufacturing life where neatness and cleanliness are second nature because they are what the making of electronics demands.

Great emphasis is placed on service and providing exactly what the end user wants to the point that some companies have an OEM department that looks specifically at the particular needs of particular customers. And, of course, all are aware of the need to have the latest international certifications and standards so that their products may be truly global.

A company established by a breakaway technical team from Motorola in 1997 is today the only electronics firm in Taiwan making surface acoustic wave (SAW) devices among other specialised components.

Along the way, Tai-SAW Technology, known as TST, has received help from the government and has expanded into China with a manufacturing plant and sales outlets in most countries of the world including a representative in South Australia.

With over 20 million components going to more than 150 customers worldwide, the company has two ranges of products. Crystal devices include resonators, multi-pole filters, crystals and voltage controlled temperature compensated oscillators. The other range is SAW devices including RF and IF filters, resonators, sensors and voltage controlled SAW oscillators (VCSO).

Components under its own name go to voice communications, data devices such as cable modems and WiMAX and consumer Bluetooth and GPS equipment. Its specific SAW products are sent largely to the US, Europe and Japan as part of the OEM service that also includes assembling the frequency and GPS modules.

Although essentially a components manufacturer, the fifth biggest in the country for crystals, TST has strong design and R&D departments where RF and modelling along with testing are carried out.

Up to 22% of SAW output finds it way into motor vehicles while customised crystal devices account for a further 22% of production by the 625 employees. However, like most other electronic manufacturers, TST had been hit by the recession but not that badly and the company is optimistic that the depths were reached in February and there is now a steady climb back to even greater profitability in 2010 when 400 million crystals and 17 million SAW devices are planned to be produced.

Some two and a half hour’s drive south of Taipei is Universal Microelectronics, a company that is definitely bucking the downturn by predicting more growth this year than last and it puts its success down to diversification to include transformers, power modules, and power supplies, magnetic components, photonics liquid crystal modules and open frame SPs.

As an example of production strength, it is in the top three companies in Taiwan for producing transformers and every month 20,000 power transformers leave the factory with more leaving its plant in Sheuzhen in China. More than 50,000, 5 W power modules come off the production line while 200,000 are produced in China.

Power supplies represent 31% of production and other magnetic products 30%. Markets, including Australia, are global with by far the greatest number of devices going to Asia representing 47% of its output. Local buyers account for 15.5%, Europe 9.89% with other markets coming in at 0.26%.

Wherever there is a manufacturer of electronic components, there is a need to make sure the devices meet specification or indeed make sure they work at all. This is where specialised instrument makers come into their own and one company at the forefront is Chroma ATE that supplies among its diverse range, equipment for testing power supplies, passive components, electrical safety devices, video and colour equipment, LCD/LCMs, optical inspection, semiconductors, LEDs and solar cells.

The company employs nearly 1000 people in Taiwan and 1300 worldwide. Of these nearly half are involved in R&D across global plants in the Netherlands, Finland, the US, Hong Kong and China, which are among the markets for the company’s products. Asia, where the bulk of the manufacturing is, attracts most of the exports.

In May this year, all sales totalled $9.6 million, an increase of 2% on April but a 37% decline in earnings from a year ago. Test and measure instruments and automatic test systems were particularly strong although the LED sales sectors are showing signs of continuous growth. Europe and North America take about a third of all production while China absorbs 60%.

One unusual aspect of the company’s production is that it makes all its own PCBs for its equipment. So reliable is production that there is only a 5% failure rate on the boards, usually due to shorted tracks. The failed boards are then put back into the system for repair leading to very little waste.

An unusual arrangement with many companies is the use of what are called ‘outworkers’. These are basically subcontractors who work in small factories and workshops, and even at home, on assembling parts used in the company’s products.

APPA, for example, a maker of DMMs, clamp meters, component testers, motor vehicle multimeters and environment testers, has an in-house workforce of 125 but then employs another 40 as outworkers.

Again, great emphasis is placed on R&D with more than 30 engineers and technicians involved, representing 10% of the company’s revenues.

With a yearly output running at 200,000 for DMMs and clamp meters, of which half are produced at its plant in China, the company aims to add up to 10 new products to its range each year. Rising labour costs in Taiwan have forced APPA to make controllers for electric bicycles only in China.

With a turnover of $16 million in 2008, this year so far is some 20% down but the company is confident that sales will be up to and beyond last year’s levels by the end of this year enabling it to hold on to its number one ranking for instrument exports.

There is also a strong Australian connection here with Power Parameters and Dick Smith being on the distributor list. More than half of all sales go to Europe with North America taking the bulk of the remainder. Asia-Pacific gets 4%, the rest of the world 8% and domestic a mere 1%.

Back in 1995, the company briefly flirted with Tektronix, which contracted APPA to build a handheld scope. The operation was set up and ran well for about three years until Tektronix failed in establishing a marketing arm for the product and the agreement was ended. So interested was the American company that it offered to buy the Taiwanese firm - an offer that was refused.

Written by Mike Smyth, Editor, What’s New in Electronics.