Taiwan' s IT-Automotive Project Suffers Setback as Big Partners Pull Out

Taiwan' s IA (Information Technology and Automotive) Project, which is designed to integrate the resources of the island' s automakers with those of information and communication technology (ICT) companies for the joint development of the automotive electronics business, has suffered a setback with the withdrawal of Hon Hai Precision Ind. Co. and Asustek Computer Inc., two of Taiwan' s biggest IT firms and among the earliest supporters of the project, because of conflicts in operating strategies and concepts.

The IA Project was initiated by the Yulon Group, the largest domestic automaking conglomerate, and the Ministry of Economic Affairs. Yulon CEO Kenneth Yen originally invited a number of top ICT companies to join in, including Hon Hai, the world' s largest maker of barebone PCs, connectors, and game consoles; the Kinpo-Compal Group, a leading maker of ICT hardware; Quanta Computer Inc., a leading contract manufacturer of notebook PCs; and Asustek Computer Inc., the world' s largest maker of motherboards and a major contract producer of notebook PCs.

The original goal of the IA Project was to develop an advanced automotive-electronics, complete-car technology platform through the integration of the R&D resources of top local ICT firms with the Yulon Group' s extensive experience in making automobiles. The resulting platform is expected to upgrade Taiwan' s technological independence in whole-car development, bring lucrative business opportunities to local manufacturers in related fields, and sharply increase the production value of the island' s automotive electronics industry. More than 10 sub-system modules were chosen as the R&D focus of the first stage of the project, including adaptive headlights and global position system (GPS) navigation systems.

The withdrawal of the two big supporters after about a year of hard work and negotiation among the project' s partners has forced Yulon to turn to smaller IT manufacturers such as Everlight Electronics Co. and Delta Electronics Inc., concedes a senior Yulon official. He insists that the withdrawal of Hon Hai and Asustek will not affect the progress of the project, however, because Yulon and the Executive Yuan Development Fund set up a new automotive-electronics company late last year.

Going It Alone

According to Yulon president Chen Kuo-rong, the new venture, which will initially be capitalized at NT$5 billion (US$156.25 million at NT$32:US$1), has already raised NT$3.2 billion (US$100 million) and will have the rest by the end of March. This means that the company can operate without the participation of other partners.

Despite their initial enthusiasm for the project, the big ICT players found that their interests differed and that the overlapping scope of business between themselves and the project would create competition. In addition, core concepts differ in the ICT and automotive electronics industries.

The most obvious difference is that all of Taiwan' s major ICT firms specialize in contract manufacturing, and they expect to win big orders quickly. This is much different from the project' s positioning, which Yulon envisages as a developer of a series of home-grown automotive-electronics sub-systems. And, after the products are developed, they will have a much smaller target market than the ICT makers are used to—tens of thousands of units for a specific car model, compared to millions or even tens of millions of units for the 3C (computer, communications, and consumer electronics) market.

As a major shareholder in and promoter of the project, the Ministry of Economic Affairs says that it will not waver in its support, since the project is a big part of the government' s policy of developing the automotive-electronics industry. The ministry hopes, however, that at least one or two of the island' s big ICT companies will join in.

Statistics from the Industrial Technology Research Institute indicate that the average cost of automotive-electronics sub-systems will make up about 40% of the total cost of a new car in 2010, double today' s ratio of 20%. Both the government and the private sector hope that "cartronics" will add a fourth "C" that will boost the growth momentum of local 3C manufacturers. (Feb. 2006)