Taiwan's Production of Electronic Components To Grow 9% in 2005

Aug 04, 2005 Ι Industry In-Focus Ι Electronics and Computers Ι By Quincy, CENS
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The Industrial Economics & Knowledge Center (IEK) of the Industrial Technology Research Institute predicts that the production value of Taiwan's electronic-component industry will grow by 9% this year, to NT$591 billion (US$18.47 billion at NT$32:US$1).

The IEK expects only weak growth in some major product categories, including compound semiconductors, passive devices, printed circuit boards (PCBs), and connecting devices. The main application market this year will remain PC and communication products, according to the IEK, and the island's electronic component manufacturers will focus their second-half development efforts on consumer electronics.

Lin Chih-hsuen, manager of the IEK's chemical-material components research division, lists three major factors that will characterize the electronic-component industry's market development this year. The first is that there will be no substantial business improvement in some emerging applications, such as auto electronics. Second, Taiwanese manufacturers will face increasing difficulties in entering high-end applications markets, while the press of suppliers in the crowded mid- to low-end markets will keep prices stagnant. Third, integrated circuit (IC) substrates will be in short supply and the value of Taiwan's IC-substrate production will rise to NT$41 billion (US$1.28 billion) this year.

Lin believes that the production of flip-chip substrates will soar 75% in value this year due to strong demand from graphic chipset makers.

Manufacturers in the line are facing increasing pressure from the demand by customers worldwide for lower prices and the convenience of one-stop shopping. In addition, says Chen Ling-rong, an IEK analyst, downstream system manufacturers have been moving production to mainland China, and this will force local component makers to expand their scale of production and the range of their product lines.

Some of the island's suppliers have been striving to expand their business scale and strengthen their competitiveness by buying other companies or forging strategic alliances with other enterprises. At the same time, numerous smaller companies have been forced out of the market by escalating costs. This highlights an obvious trend in Taiwan's electronic-component industry: the big and strong are getting bigger and stronger.

As a result of the migration of production facilities to mainland China, according to the IEK, a growing number of Taiwanese companies are operating full production lines there. The overseas-production ratio of the island's electronic components industry reached 48.5% last year and is expected to top 50% this year, due especially to the rapid expansion of overseas production by PCB and connector makers.

Another factor that will affect the cost structure for Taiwan's makers of electronic components is the requirement, under the EC Directive on Waste Electrical and Electronic Equipment and the EC Directive on the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment, to use lead-free soldering material in the production of PCBs, connectors, and a variety of passive components. This will increase production costs by 10% to 20%, which is more than the profit margins of some suppliers. Costs will also be boosted by the need to use recyclable plastic materials.
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