Taiwanese officials worry so much that their technology-reliant island will lose competitiveness to the fast-maturing supply chain of China that they’re spending $358 million this year on a business park that's supposed to foster sub-industries such as the Internet of things. But the existing tech sector worth, which is about a fifth of Taiwan’s half-trillion-dollar economy and focused on making electronic hardware for original designers, shows signs of comeback rather than demise.
The reason: Smartphone shipments are rising steadily despite some tapering of the past, especially with this year’s iPhone X release, industry analysts say. And even the tablet PC, once considered a flatlined industry, shows signs of pickup.
Smartphone growth
Global smartphone shipments grew a “solid” 5% annually to 393.1 million units in the third quarter this year compared to the same period of 2016, market research firm Strategy Analytics says. It attributes the gain to first-time buyers in Asian emerging markets and upgrades to higher-end Android models in Western Europe.
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World tablet PC sales at the same time have reached a “point of recovery,” after a four-year downturn, Taipei-based market research firm TrendForce says in a note November 7. Shipments this year will reach about 148.9 million tablets, a “more moderate drop” of 5.4% compared to 2016, it says. Next year, major tablet brands should see shipment declines ease, the firm forecasts. Amazon, Huawei and other relatively new market entrants gain, it adds, leading to an overall shipment gain of 0.3%.
Taiwan’s supply chain still has what it takes
Taiwan’s suppliers and assemblers, though they may lack the software savvy that government officials consider critical for long-term competitiveness, have what it takes to earn money from newer tablets and smartphones, analysts say. Shipments this year and next essentially require nothing so new that old-school firms can't make it.
The long-standing reputations would keep them competitive through the boom in manufacturing to build all the new phones and tablets.
Among the expected gainers, Taiwan-based MediaTek would develop mobile device chips, the giant TSMC would make semiconductors on contract and Hon Hai Precision would assembly the devices, says Neil Mawston, executive director for wireless devices with market research firm Strategy Analytics in the United Kingdom.
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Display component maker Himax Display Co. and memory parts developer Nanya Technology, both of Taiwan, also should find “plenty of growth opportunities,” Mawston says. Taiwan's location near two massive markets further helps, he adds.
“Taiwan is fairly close to China and India, and that geographical proximity, for lower shipping costs, means Taiwan will still have a shot at being a key player in the global smartphone industry in 2018 and beyond,” he says.
Competition from China
Suppliers from Japan and South Korea vie now with Taiwanese firms for mobile device contracts, notably smartphone display panels by LG or Samsung. In China, a maturing high-tech supply chain poses another threat as Taiwan’s nearly 70-year-old tech sector lacks new technology, sales channels and widely known domestic brands to keep up, according to this Brookings study.
Chinese suppliers can outdo Taiwan in production scale and cost. They also count as clients the major Chinese smartphone brands, such as Huawei, Oppo and Xiaomi. Like a lot of industries in China, tech is full of firms that prefer to source products onshore rather than off.
“I think that Taiwan smartphone (contract) companies will depend more on Europe, America and Taiwan vendors such as Apple, Sony, Nokia and ASUS,” says Sean Kao, a research manager with market research firm IDC in Taipei. “On the other hand, Taiwan component suppliers have more opportunities in new the functions and features field such as the new technology of iPhone X this year.”
China may dominate Taiwan in tablet PC assembly, but Taiwanese panel suppliers will fare better next year than in 2017, TrendForce analyst Tseng Kou-han says. Taiwanese suppliers may have goods good enough to attract Huawei as well as Amazon, whose Fire HD 8 tablets should see shipments pick up in 2018, she says.
“There will be both positive and negative factors influencing Taiwanese panel makers’ performances in the tablet application during 2018,” Tseng says. “On the positive side, much of the next year’s tablet panel demand will come from the fast-growing Amazon and Huawei.”
