mike wsj on Monday identifies more entries into mobile-phone market.
The cost of these phones should drop significantly along with margins.
Business and Finance - Asia
Taiwan Firms Hear a Calling
In the Mobile-Phone Market
By RUSSELL FLANNERY
Staff Reporter of THE WALL STREET JOURNAL
TAIPEI, Taiwan -- Local companies that rank as the world's third-biggest makers of computer
equipment hope they'll soon connect with consumers in a new market: mobile phones.
The island's manufacturers are aiming to break into a rapidly expanding mobile-phone market that
grew 51% to 162 million units globally in 1998, according to Dataquest Inc., a research unit of
U.S.-based Gartner Group Inc. Sales will stay brisk because of falling prices, rapid changes in
functions and technology, and rising demand for mobile communications, says Peter Richardson,
principal analyst for mobile communications at Dataquest in London.
To be sure, Taiwan companies probably won't be much of a threat to the three industry leaders --
Nokia Corp. of Finland, Motorola Inc. of the U.S., and Telefon AB L.M. Ericsson of Sweden --
which last year controlled about 57% of the world's mobile-phone market. Yet the island's makers
are part of a group of industry newcomers that "buck the trend in recent years of attrition" among
mobile-phone suppliers with a low market share, Mr. Richardson says. "There's plenty of
opportunity" for the smaller players these days because exploding growth in mobile-phone
shipments makes it hard for even savvy multinationals to serve every market, he says.
Eager Newcomers
At least four Taiwan companies are looking to secure a toehold in the industry. Arima Corp., which
last year supplied about US$1 billion of notebook computers to U.S.-based Compaq Computer
Corp., said this month that it plans to invest in a new company this year that will produce mobile
phones. GVC Corp., a maker of computer equipment that already had some small-scale
mobile-phone shipments last year, said this month that it hopes to raise output to as many as
800,000 units in 1999.
And Acer Peripherals Inc., after about five years of limited production, plans to make about one
million mobile phones this year, and double that in 2000, says a spokesman for the 35%-owned
affiliate of computer maker Acer Inc. DGTEL Inc., which already makes wireless phones for
AT&T Corp., said this month that it won an order to produce one million mobile phones for
Motorola.
Taiwan has been mostly a no-show in the mobile-phone industry, in part because at one time the
authorities didn't encourage the spread of wireless-communications technology on national-security
grounds, says Yeh Yung-tai, a telecommunications industry analyst at the Market Intelligence
Center, or MIC, an industry-backed research organization. The legacy of that policy is a shortage
of local engineers familiar with key telecommunications technology, industry executives say.
Efforts to Diversify
Yet times have changed. Taiwan's high-tech manufacturers, favored by multinational computer
companies for their ability to adapt new products quickly and their willingness to accept thin profit
margins, are now looking to diversify into mobile phones as the personal computer business
becomes more cutthroat than ever.
They have a reasonable chance to succeed because of their manufacturing expertise, the willingness
of overseas companies to license low-end know-how as products upgrade quickly, and the overall
sharp growth in demand for mobile phones in Asia, especially in China, analysts say. "This year
may bring some real developments and be a starting point for Taiwan," says Mr. Yeh of MIC.
Companies most likely to make a mark this year include Acer Peripherals, because it can take
advantage of the brand-name recognition built up by its affiliate Acer Inc. in the computer market,
and because it's now been experimenting with mobile-phone technology for years, analysts say.
Acer Peripherals projects that its mobile-phone sales this year may hit as much as 3 billion New
Taiwan dollars (US$90.6 million), or roughly 10% of its total revenue, says company spokesman
Eric Yu. He didn't say how much they would add to profit.
Other companies may focus more exclusively on the strategy that's paid off for the island in the
computer business: contract manufacturing. GVC, which is already selling some phones in the
region and is looking for contract orders from a bigger multinational, sees a chance that Taiwan
may be able to work with global mobile-phone giants in the same way it works with multinational
makers of notebook computers.
"There are similarities between this and notebook computers," a GVC spokesman says. "Taiwan's
infrastructure is improving. More customers are asking us questions about making mobile phones.
This trend won't change."
Support From Customers
For newcomers, some of the benefits of working as an offshore supplier are the possibility of
obtaining technology and manufacturing support from customers. They don't have to spend much
on brand promotion, long a Taiwan weakness.
"Anyone can come into the market with a product," says Dataquest's Mr. Richardson. Brand
perception and product design are also key to winning mobile-phone sales, however, and "that's
where the new players aren't very well positioned to compete," he says.
With growth in global mobile phones so rapid last year, Taiwan isn't alone in sizing up the
telecommunications market. Suppliers of components such as printed circuit boards also are trying
to become suppliers to big telecommunications multinationals or even Taiwan companies that are
trying to break into the business, says John Brebeck, an analyst at Jardine Fleming Taiwan
Securities.
"It's a market that the Taiwanese could get a lot more share of, and a market they will get more of,"
he says.
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