Tech Leader Has High Hopes for 2011 Market

Among his New Year's resolutions, as chairman of the Taiwan Electrical and Electronic Manufacturers' Association (TEEMA), Youjun Jiao lists hopes for closer cooperation between the electronics industries of Taiwan and China; as chairman of the 10-company Hwahsin Lihwa Group, he wishes for improved business operations.

TEEMA represents over 3,800 manufacturers, and Jiao feels that those companies should strive this year to work closer with mainland China in developing markets around the world—especially in emerging economies.

“The electronics industries on the two sides of the Taiwan Straits have worked well together in the first stages of their cooperation, in LEDs, green energy, and auto electronics,” Jiao says. “Now, Taiwan's manufacturers should build on this past partnership to advance into emerging markets.”

Taiwan's electronics industry recorded total revenues of US$180 billion in 2009, two thirds contributed by key components manufacturing. Most of the components were shipped to mainland China for assembly (in TEEMA members' factories) into finished products for export. These members, Jiao claims, generated total revenues of around US$300 billion in the mainland that year. “This is what we generally tout as the division of labor between the two sides of the straits, which has been working very well,” he adds.

The chairman suggests that the thin-film transistor liquid-crystal display (TFT-LCD) industries on the two sides should work more closely together since there is a high degree of complementarity in the field, with Taiwan providing manufacturing skills and the mainland offering a huge market for TVs.

Taiwan has long depended on the West to purchase its consumer and industrial electronics, but Jiao notes that the global market is now shifting toward emerging economies—whose populations have been growing at the rate of almost one billion every decade.

More Simplicity, Lower Prices
He cautions, however, that emerging-economy consumers of high-tech products usually stress simplicity and affordable pricing over innovative design, and he feels that Taiwanese manufacturers should take advantage of this characteristic. “For instance,” he explains, “while shartphones built on the ARM9 architecture are popular among customers in the West, consumers in Africa and India are settling for handsets designed on the ARM0 format.”

Consumer preferences in emerging markets, Jiao notes, favor manufacturers of eco-friendly products such as old-fashioned handsets that require less energy and materials than do handsets sporting futuristic designs and advanced materials.

When asked which technologies and products will remain popular in 2011, Jiao lists touch screens, man-machine interface, smartphones, cloud computing, green technology, the Microsoft Kinnet game console, and auto electronics.

As part of his New Year's resolutions for his own companies, Jiao hopes to keep the Winbond Electronics Corp. profitable after returning to the black in 2010 by scaling down the production of commodity memory chips, over an eight-year period, to make room for the increased production of niche chips.

Winbond made a record profit of NT$10.1 billion (US$336 million) in 2000; the next year, the memory chip market collapsed and pushed the company into a loss of NT$10.66 billion (US$355 million). The transformation process began in 2002.

The company estimates its profit for 2010 at NT$1 per share on sales of NT$39.9 billion (US$1.3 billion), up from NT$26.6 billion (US$889 million) in 2009. The production of commodity chips was down to barely 5% of total output in the fourth quarter of last year; most capacity was taken up by specialty dynamic random access memory (DRAM) and NOR Flash chips. “There is still some idle capacity,” Jiao comments, “but we will never fill it with commodity chips. Graphic memory chips will be our first choice.”

When the DRAM market surged in the first half of 2010, Jiao refused to be lured back into the commodity chip business, as many of his competitors were; instead, he worked Winbond's way into the supply chains of big-name suppliers of niche memory chips.

Tough Challenge
Last year was Winbond's best ever since switching to niche chips. Jiao does not think that rival companies can easily duplicate his success, since the company's transformation required an eight-year process.

Jiao has issued a tough challenge to another Hwahsin Lihwa company, Nuvoton Technology Corp., a chipmaker that was spun off from Winbond in 2008: achieve profits of NT$4 per share every year beginning in 2011. “Last year was the first year that we could see significant results since Nuvoton was spun off from Winbond,” Jiao reports. “So I made that request of them.” The company's revenues grew 12.13% in 2010, to NT$7.79 billion (US$259 million).

Nuvoton is a trailblazer in 32bit micro control units (MCUs). “The company took less than a year to introduce 32bit touch-panel ICs,” Jiao says. “In 2011 it will roll out more 32bit chips.”

In 2010 the company introduced industrial 32bit chips for automobiles, multi-touch panels, LED backlight modules, medical electronics, and DC brushless motors, along with consumer 32bit chips for furry toys, game consoles, and PCs.

Nuvoton uses 50% of the capacity of a 150mm wafer fab that it took over from Winbond to make its own-brand chips for audio ICs, MCUs, and computers; the other half is used for foundry service. Over the next few years, Jiao says, foundry service will grow to 70% of total capacity as part of his idea of transforming the company into a design house over the long term. “In the latest downturn,” he explains, “we see that Nuvoton's design business made a steady profit while Winbond's memory chips were strongly susceptible to fluctuations.”

Jiao believes that his industry is facing a number of uncertainties this year, including the unpredictable results of quantitative easing (QE2) in the U.S. and the appreciation of the New Taiwan dollar. “Since most of Taiwan's electronics manufacturers depend on overseas markets,” he explains, “the rising value of the NT will certainly affect our export competitiveness. As for QE2, we naturally hope that it can stimulate the U.S. economy.”