Winning market share through Taiwan design and China production

By Clayton Dube

ON AN AVERAGE DAY in 2006, Taiwan-headquartered firms produced over 90% of the laptop computers sold worldwide. This figure rose from 73% in 2005 as South Korean firms exited production.

Dominance in laptop production is just one area where Taiwan, China, and Hong Kong firms loom large in information technology importance. Many better-known firms contract to produce their products there and an increasing number are also dependent on these areas for sales and technological innovation. BusinessWeek’s 2007 InfoTech 100 included the following companies, ranked according to return on equity, shareholder return, and revenue growth. We’ve added observations about the firms’ China, Taiwan, and Hong Kong ties.

Rank: 4
Hon Hai Precision Industries
(2006-2007 12-month revenues $40.1 billion, profits $1.8 billion)
Hon Hai was one of two Taiwan electronics firms turning out Apple’s iPhone this year. Hon Hai is the leading contract manufacturer of electronic goods (Hewlett Packard, Sony, Motorola, and Dell are also customers) and produces most of its products in China. It has more than 130,000 workers in China. Company chief Terry Gou has identified the company's greatest challenges as continuing to recruit top talent and increasing productivity, continuing to effectively integrate global manufacturing resources, and avoiding the temptation to pursue growth at any cost. Hon Hai ranked 206 in Fortune magazine's 2006 Global 500.

Rank: 10
China Mobile
(revenues $37.6 billion, profits $8.4 billion)
The Chinese government-controlled Hong Kong “red chip” is already the world’s largest cellular phone company. It has over 330 million subscribers and profits have risen 26% as it has made a concerted effort to sign up rural customers. Partnerships with game and messaging firms generate a significant share of revenues and profits.

Rank: 17
Nokia
(revenues $53.4 million, profits $5.6 billion)
Chinese factories turn out Nokia’s phones and many are purchased in China. China is now the Finnish company’s top market, amounting to 8% of all Nokia sales. Nokia’s an innovation giant, ranking fourth in 2006 patent applications. Nokia trailed Motorola in sales in China in 2005-2006.

Rank: 28
Wistron
(revenues $6.7 billion, profits $162 million)
This Taiwan-based firm, an Acer-spin-off, produces LCD televisions and laptops for well-known companies as well as other devices, such as Sirius satellite radio’s Stiletto. Wistron became Dell’s second largest supplier in 2006.

Rank: 29
Asustek
(revenues $17 billion, profits $660 million)
Another Taiwan firm, now moving to market laptops under its own name. Asustek recently agreed to begin producing Intel’s “Classmate PC,” a low cost laptop aimed at schoolchildren in developing countries. The laptops are currently produced by another Taiwan producer (Elitegroup Computer Systems) for $320, Asustek is expected to bring the price of a further modified laptop down to $200.

Rank: 42
Nanya Technology
(revenues $2.3 billion, profits $529 million)
Taiwan-based memory chip manufacturer is part of the Formosa Plastics Group controlled by Wang Yung-ching.

Rank: 43
High Tech Computer
(revenues $3.2 billion, profits $767 million)
This Taiwan company has been profitable producing Windows-based smartphones. It now plans to market phones under its own brand. In fact, it introduced a touch screen phone weeks ahead of the iPhone launch.

Rank: 53
Siliconware Precision Industries
(revenues $1.7 billion, profits $405 million)
Taiwan firm tests and assembles semiconductors.

Rank: 56
VTech Holdings
(revenues $1.2 billion, profits $128 million)
This Hong Kong-listed firm sells its cordless phones and toys throughout the U.S. and the world.

Rank: 59
Taiwan Semiconductor Manufacturing
(revenues $9.6 billion, profits $3.9 billion)
Still the largest chip producer in the world, with chips powering a variety of products, including Microsoft’s Xbox 360. Chairman Morris Chang served as Taiwan’s representative to the 2006 Asia Pacific Economic Cooperation meeting in Vietnam.

Rank: 63
Compal Electronics
(revenues $11.6 billion, profits $266 million)
Taiwan company is now the second largest producer of laptops, turning out machines for Hewlett Packard, Toshiba, and fellow Taiwan company Acer.
 
Rank: 67
Powerchip Semiconductor
(revenues $2.8 billion, profits $831 million)
The Taiwan-based memory chip firm has recently sought to take control of Macronix (it owns 5% of Macronix).

Rank: 75
Digital China Holdings
(revenues $2.5 billion, profits $32 million)
This Hong Kong-listed firm sells servers and personal computers and has an important share of the Chinese banking and telecommunications computer market.

Rank: 77
Inventec
(revenues $7.8 billion, profits $171 million)
Taiwan-based notebook computer maker is among those being courted by Indian partners. A Bloomberg writer identified Inventec as the top Asian buy-out target, owing to its large surplus cash-flow and tiny debt load. In addition to its manufacturing prowess, Inventec produces Dr. Eye, a reference and translation utility.

Rank: 85
Quanta Computer
(revenues $16.3 billion, profits $393 million)
Taiwan-based firm is the world’s largest producer of notebook computers, but quality control and other recent problems have lessened its dominance. The firm is scheduled to produce the $175 “One Laptop Per Child” machines aimed at poor schoolchildren. It also turned out iPhones for Apple. There is a reorganization struggle going on within the company’s leadership.

Rank: 92
Acer
(revenues $11.2 billion, profits $311 million)
Acer is the world’s third-largest computer seller after Hewlett Packard and Dell. The Taiwan-based firm is now led by an Italian. It recently announced plans to acquire California-based Gateway. Acer founder Stan Shih represented Taiwan at the 2007 Asia Pacific Economic Cooperation meeting in Australia.

Rank: 99
D-Link
(revenues $1.3 billion, profits $77 million)
Best-known in the U.S. for its modems and routers, the Taiwan firm still makes 85% of its money making goods for other companies.

Sources:

“CII delegation to Taiwan to explore investment opportunities,” Hindustan Times, Sept. 2, 2007.
“Cross-Strait Market ‘Spells Disaster’ – Chen,” China Post, July 1, 2007.
“The InfoTech 100,” BusinessWeek, July 2, 2007.
Inventec Targets No. 1 Translation Software Brand in Mainland,” Sinocast, May 24, 2007.
Ken Belson, “Silent Hands Behind the iPhone,” New York Times, July 18, 2007.
Jason Dean, “The Forbidden World of Terry Gou,” Wall Street Journal, August 11, 2007.
Bruce Einhorn, “Intel Inside the Third World,” BusinessWeek, July 9, 2007.
Kathrin Hille, “Quanta reshuffle after loss of orders,” Financial Times, July 10, 2007.
Jimmy Hsiung, "Terry Gou reveals the Hon Hai philosophy," CommonWealth, June 21, 2006.
Tom Mitchell, “Rural Push Boosts China Mobile Profit, Financial Times, August 16, 2007.
Andy Mukherjee, “When there’s too much cash; viewpoint,” (Bloomberg News) The International Herald Tribune, June 8, 2007.
Research In China, “China Laptop Industry Report, 2006-2007,” March 2007.