DJ FEER(3/8): Troubled Telecoms Rush To Taiwan To Cut Costs
By Mark Carroll in Taipei
ONCE AGAIN, the Taiwanese are beginning to weave their cost-cutting spell.
The target this time: telecoms. In the 1990s, Taiwan's ability to
manufacture cheaply -- and well -- was instrumental in turning the personal
computer from a high-margin, technological wonder into an everyday
commodity. Now, as they look to stem losses, telecoms giants such as
Ericsson and Motorola are increasingly outsourcing their handset
manufacturing to Taiwan. Could Taiwan emerge as the world's dominant handset
maker, doing for mobile phones what it did for personal computers?
Faced with the twin demons of a highly competitive market driving down
prices and the high production costs of manufacturing in Europe and the United States, telecoms companies are moving away from handset production.
Sweden's Ericsson recorded over $1.7 billion in losses from its cellphone
division last year and now plans to outsource all handset manufacturing.
Troubled U.S.-based Motorola faces similar problems. After issuing a profit
warning last month, the world's No.2 wireless-handset maker is expected to
close four of its 55 plants in the U.S. and Europe this year.
That spells good news for the Taiwanese, as both firms look to make the
production and design of their cell phones more cost-efficient. In Taiwan,
design and manufacturing costs are about half what they are in Europe and
the U.S.
In January, Ericsson signed a deal, expected to be eventually worth $450
million, with Taiwan's GVC Corp. for the design and production of
cellphones. Last year, GVC made about 900,000 cellphones and expects to make
2 million this year on the strength of the Ericsson deal.
Acer Communications this year expects to more than double its 2000 shipments
of about 4.6 million handsets as orders increase from its main client,
Motorola. Like the Ericsson-GVC deal, Acer is hoping that Motorola will also
utilize its research and development skills for new cellphone design.
Changing economic conditions in Taiwan, especially increasing salaries, make
the rise of the mobile-phone manufacturing business different from the
growth of the island's PC industry in the 1990s.
Now, there is more urgency to save costs. With some analysts warning of
shrinking profit margins as competition heats up, the answer is to
manufacture in China. "The only companies who will make money are those who
design here and then successfully transport the manufacturing to China,"
says Paul Meyer a securities analyst at Credit Lyonnaise Securities Asia in
Taiwan.
Taiwanese manufacturers already have strong connections and facilities in
China. And manufacturing is increasingly becoming a matter of "simple
assembly," according to Alex Hinnawi, spokesman for chipmaker United
Microelectronics Co.
It's not just cellphones where the Taiwanese are reducing production costs.
The manufacturing of broadband infrastructure is also seen as fertile ground
for design and production expertise.
Taiwan's leading network-equipment manufacturer, D-Link Corp., is planning
to move into Internet infrastructure-equipment manufacturing for Asia and
the U.S. D-Link expects its sales of broadband equipment will triple this
year. Last year, D-Link's broadband sales were only about 3% of total sales
of $456 million.
Taiwan's Market Intelligence Centre reported telecoms equipment industry
sales of over $3 billion last year. While this is less than 10% of what
Taiwan's PC production sales were last year, the projections for growth are
impressive.
MIC estimates that in 2003 the industry will produce more than $10 billion
worth of products. That is four times the projected growth of the PC
industry in Taiwan and twice the projected growth of the world's telecoms
industry.
The Taiwanese don't have much new to offer. Just the proven ability to enter
a fragmented market, figure out where the highest potential segment is and
design and produce products for that market.
(END) DOW JONES NEWS 02-28-01
05:16 PM |
