Taiwan’s technical prowess

Taiwan's high tech industry is dominant in PC-IT,
Broadband CPE products like Wireless AP Routers, DSL/Cable modems, Portable
Media Players, Low End Routers, Switches, Smart Phone and IP-STB/IPTVs.
Some of the reasons for this prowess are explained here.

Ever wondered just how big some of these Taiwan and APAC based OEM (Original Equipment Manufacturers), ODM (Original Design Manufacturers) and EMS (Electronic Manufacturing Service) companies are?

This report states that Hewlett-Packard (HP)is the top OEM semiconductor spender in 2010, a position it will retain
after taking the No.-1 spot away from Nokia.
HP will spend an estimated $12.6 billion this year on semiconductors, compared to $10.99
billion in 2009.  On the other hand, the top
EMS spenders in 2010 will include Foxconn,
Flextronics, Jabil Circuit and Celestica. For No.-1 Foxconn, spending will
reach $22.6 billion in 2010, up 18.7 percent from $19.0 billion in 2009,
boosted by the company's manufacturing of HP products, Nintendo's Wii, Sony's
PlayStation 3 and Apple's iPod, iPhone and the soon-to-be-released iPad. The point is, Foxconn spends approximately 80% more on semiconductors than the world's top OEM. Taiwan is home to several EMS, ODM and OEM companies that makes devices sitting across the globe.

Increasingly, OEMs are
dependent on ODM's and EMS's. The main intent is cost
reduction. This trend is particularly noticeable in the
case of Taiwan, China, India, and some SEA countries to a lesser extent. The
reducing time-to-market and cut-throat competition in the consumer electronics
industry is forcing these companies to rely on their suppliers not just
for design, manufacturing and maintenance, but also for managing the supply
chain; thereby allowing the customer to focus solely on branding.
Though OEMs benefit by a reduced cost of product ownership and flexibility to
fast-changing market trends, ODMs now have unprecedented influence in influencing technology, making them perhaps the single largest
foreign stakeholder in the product.

The strategic focus of
Taiwanese companies is on manufacturing and not so much in software design. Most of the
designs are done by semi’s (Reference Design) or their customers while a
majority of the production is being done in their China based factories. The profit
margins are extremely low with most products having profit margins in the order of 5-10%. Hence,
there is a lot of focus on BOM (Bill of Materials) cost. The
big players in Taiwan are getting bigger through M&A and are also acting like
vertically integrated suppliers from components, cabling, PCB, power supply to
enclosures, etc. In several cases, like the Wireless AP Router market, Wind River has helped these customers reduce the software code size that has helped address customer challenge to drive down the BOM cost based on VxWorks.

My colleague Markus Koehler and I
recently had a first hand experience visiting Taiwan. We took this opportunity to present high level vision and product strategy for digital living and also shared it with several press representatives and an event for several OEM/ODM/EMS's. One of the press report is available here.


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