Taiwan IT Industry's Local Production Value Continues Sliding: IT IS

In terms of value, the local production ratio of Taiwan's information technology (IT) hardware industry sharply dropped this year to only 6.8% from 15.6% in 2004, according to IT IS (Industrial Technology Intelligence Services), a project sponsored by Taiwan's government and executed by the Industrial Economics & Knowledge Center (IEK).

Statistics compiled by IT IS show that Taiwan's IT hardware production value is expected to reach US$77 billion this year, up 10.5% from 2004, but the growth rate will be the lowest since 2001. IT IS attributes the low annual growth rate to sliding IT product prices.

Next year, IT IS forecasts that the production value of Taiwan's IT hardware industry will grow by 10.8% to US$85.3 billion, and the value is expected to outstrip U$100 billion in 2008.

The Exodus Continues

The exodus of local IT hardware makers continued this year, IT IS says, which can be clearly seen in the rapidly declining production value generated in Taiwan. This year the value will only be about US$5.24 billion, compared with about US$10.87 billion in 2004.

According to IT IS, the continuously falling price of personal computers has accelerated the exodus of local IT hardware makers overseas, and the continuation of the trend will further decrease the local-production value of companies based on the island.

Some leading IT hardware makers have mapped out large-scale moves, including Asustek Computer Inc., which plans to transfer more than 80% of its local notebook PC production to its second production base in Shanghai in mid-2006. Asustek's Taiwan headquarters has already asked all of its employees to detail their willingness to work in mainland China.

IT IS also points out that more and more local IT makers are expected to install LCD TV production lines overseas to escape high import tariffs levied on models shipped from their plants in Taiwan. Asustek and Hon Hai Precision Ind. Co. Ltd. (the world's largest maker of barebone PCs, connectors, and game consoles), for example, have set up production plants in Czechoslovakia. First International Computer Inc. and local home-appliance partner Sampo Co. also plan to jointly set up an LCD TV assembly plant in Europe.

Some rising markets with low labor costs-such as Vietnam, Mexico, and India-are also being targeted by local IT hardware makers for relocating their production bases. MiTAC Group, for example, has set up a plant in Vietnam to meet cost requirements imposed by major contract digital-camera customers. Giga-Byte Technology Co., Ltd., a leading printed circuit board (PCB) maker, has started production at final assembly lines in India to escape high import tariffs.

IT IS says the local IT hardware companies do not solely focus on mainland China as their overseas destination, but rather on locations that can provide cost advantages and sales opportunities.

OIM-oriented Operation

IT IS also suggests that Taiwan's IT hardware makers should shift their business models to the original innovative management (OIM) mode from the original equipment/design manufacturing (OEM/ODM) mode.

In the past 20 years, local IT companies mainly concentrated on becoming manufacturing partners with international brands. The OIM mode represents a major shift, according to IT IS, implying the cultivation of diversified talents, product innovation, and original design concepts. Under this mode, companies directly investigate consumers' needs and design the most suitable products for the market.

The center explains that local IT hardware makers should not only focus on moving production overseas, but also on developing a strategy to accentuate their competitive advantages.

Software

IT IS also forecasts that the market value of Taiwan's software industry will reach NT$166.9 billion (US$4.97 billion at US$1: NT$33.6) this year, up 5.9% from last year. The value, according to the center, is expected to continue growing by 6.6% to about NT$177.8 billion (US$5.29 billion) in 2006.

The value of Internet services is expected to enjoy a growth rate of 13.4%, while traditional software products will only see a rise of about 2.1%.

According to IT IS data, the Internet-services sector has provided the major growth momentum for Taiwan's domestic software industry through fast-rising online retail sales and the popularity of game applications. In turn, online retail sales and games have been given a major boost by the increasing popularity of broadband Internet connections.

IT IS predicts that online sales (or e-commerce) and Internet messaging services are expected to be the future stars in the online services market. Taiwan's online services sector is expected to reach NT$6.86 billion (US$204.05 million) in 2007, IT IS forecasts.

IT IS attributes the relatively low growth in the value of traditional local software products to local enterprises' conservative spending habits and to the continuous exodus of local companies.

(QL, November 2005)

Table 1:

Global Production Value of Taiwan's IT Hardware Industry
Year	2001	2002	2003	2004	2005*	2006	2007	2008	2009
Production Value (US$1 million)	42750	48435	57171	69664	77012	85358	95437	106565	116736
Annual Growth	-9.1%	13.3%	18%	21.9%	10.5%	10.8%	11.8%	11.7%	9.5%
*: Figure excluding value of projectors. Source: IT IS

Table 2: Excel chart