Silent Hands Behind the iPhone

July 18, 2007


Silent Hands Behind the iPhone


By KEN BELSON

Published : July 18, 2007 / The New York Times



Etched into the back of every iPhone are the words “Designed by Apple in California. Assembled in China.” Apple might as well have added “Made in Taiwan.”



With little fanfare, Taiwan companies are playing a big role not only in the production of Apple’s latest device but in a wide array of other communications equipment, including the broadband modems in homes across the United States and the next generation of high-speed wireless gear.



Apple does not discuss which vendors it uses, but news reports in Taiwan said that Hon Hai and Quanta received orders to produce millions of iPhone handsets, reports that those companies declined to confirm. Other manufacturers there were almost certainly involved because they provide components used in advanced phones, industry analysts said.



Taiwan companies also have a hand in making iPods and iMacs, they said, as well as game machines for Sony and Microsoft.



Taiwan’s rise as a communications workhorse is part of a decade-long transformation under way on this island. Already the world’s biggest producers of computer components, Taiwan companies like Compal Electronics, in addition to Hon Hai and Quanta, have used their expertise to branch out into new markets that use many of the same products.



By harnessing the ability to cut costs, churn out products quickly and work flexibly with customers, the Taiwan companies have become top makers of cellphones, smartphones, broadband modems, wireless routers, global positioning devices, networking equipment and other gear. They, like companies elsewhere, have also made deep inroads into China, where many of their factories are.



“It’s not a surprise that the iPhone would be made here because the food chains for Apple’s notebooks and iPods are already in Taiwan,” said Dominic Grant, a telecommunications analyst at Macquarie in Taipei. “It’s a natural progression.”



Taiwan’s evolution from computer-making giant to telecommunications Goliath has gone largely unnoticed in the United States because companies here make most of their money as made-to-order manufacturers, not sellers of their own brand products. But Taiwan’s industrial makeover has helped its companies remain competitive in a world increasingly dominated by low-cost Chinese assemblers and by Japanese and South Korean companies with strong footholds in high-end components like flash memory chips.



The strategy of repackaging — finding new uses for computer components — has paid dividends. Companies on the island have captured 87 percent of the global market for wireless modems, 84 percent of the D.S.L. modem market and 70 percent of the market for personal digital assistants.



In the competitive cellphone business, Taiwan companies made 12.4 percent of the world’s handsets last year, up from 9.8 percent in 2005, according to the Institute for Information Industry, a government-affiliated research center. That share is expected to grow as brand-name companies like Sony Ericsson outsource more of their production to companies here.



In all, Taiwan companies produced $31.5 billion in communications equipment and services last year, more than 50 percent above the total the year before, according to the institute, which expects production to reach a value of $46 billion by 2010. Less than a quarter of that was manufactured on Taiwan, with the bulk made on the Chinese mainland.



“It’s been a fairly natural progression because handsets are really a mini-version of the PC, and Taiwanese are adept at adjusting,” said Gary Chia, president of the Yuanta Research Center.



The transformation did not happen by accident. As in much of Asia, the government played an active role in steering businesses into new markets by showering them with tax incentives, cheap property to build factories and research money.



Companies on Taiwan have also been able to shift gears smoothly because the concentration of component producers on the island has made it easier to gather the technology and engineers to design and assemble new products.



And Taiwan companies, like their rivals in Japan, South Korea and elsewhere in Asia, have increasingly shifted production to their factories in China to save money. With their close cultural, financial and linguistic ties to mainland China, Taiwan’s companies have an edge over those from elsewhere.



These advantages helped scores of companies tackle new markets. Take D-Link, one of the world’s largest manufacturers of broadband modems. About two decades ago, it started out by making network interface cards that linked computers. As Internet access for home use expanded, the company started making dial-up modems.



As phone companies in the United States and elsewhere started leasing modems to their customers, D-Link was flexible and designed products to each carrier’s specifications while remaining cheap enough to nudge out rivals.



“Telecommunications companies are difficult to deal with because each one has its own standards, and there is a lot of customization,” said J. C. Liao, D-Link’s president. “But it turned out to be an advantage because Taiwanese are more flexible compared to companies in the U.S. or Japan. We’re quick to lower costs and not stick to our own rules.



D-Link has evolved with the technology, expanding into wireless modems and pushing into emerging markets like India and Russia, as well as selling under its own brand name at big retailers like Best Buy and Office Depot to become the No. 2 competitor, after Linksys. About 15 percent of the company’s revenue now comes from brand products.



Mitac International, a leading seller of global positioning devices, took a similar route. Through the 1980s and early ’90s, it built personal computers for the likes of Compaq. But as profit margins slipped and mergers reshaped the industry, the company started making personal digital assistants. Then Hewlett-Packard bought Compaq, leaving Mitac short a big customer.



So when the United States government allowed civilians to use G.P.S. technology, the company integrated it into its personal digital assistants after a couple of years of development. Mitac joined another leader in the industry, Garmin, which is based in Kansas but makes almost all its G.P.S. devices in Taiwan.



“We saw these big waves come one by one in the mid-1990s, so we tried to figure out how to survive in this rapidly changing business,” said Billy Ho, the president of Mitac International, which sells G.P.S. devices under the Mio brand. “We realized there was no Microsoft in the digital map business.”



Mitac still earns about 70 percent of its sales by making desktop computers, servers and other technology for other companies, though Mr. Ho hopes that the share will fall to 50 percent by next year.



Since so many of the latest devices are made here, it is perhaps unsurprising that some Taiwan companies are beating brand-name companies to the punch. High Tech Computer, for instance, introduced a touch-based handset just weeks before the iPhone was released. With a less recognizable name, High Tech has more modest ambitions. But it is still pleased that Apple has joined the market.



“We’re happy they share the same vision as we do,” said Fred Liu, the chief operating officer. “We think these phones will change people’s minds and their behavior.”



While D-Link, High Tech and Mitac have developed brand-name products to reduce their reliance on their made-to-order business, there are plenty of other companies that have had trouble branching out on their own.



For instance, in 2005 BenQ, which primarily made cellphones for other companies, bought the handset division of Siemens in hopes of taking on the likes of Sony Ericsson and LG. Yet BenQ, a spinoff of the Taiwan computer giant Acer, alienated one of its biggest customers, Motorola, which was wary of having a new competitor manufacturing its products. BenQ also underestimated the depth of Siemens’s problems and how much it would cost to break into an already crowded and competitive cellphone market.



After losses mounted, BenQ liquidated the venture and will focus its energy on making handsets for other companies, as well as on its existing businesses producing flat-panel monitors, televisions and digital cameras.



“People thought with Acer’s success, BenQ could make it, too, since its chairman came from Acer,” said Kirk Yang, managing director at Citigroup in Hong Kong. “But the acquisition was a black hole. BenQ didn’t have a home base and had no experience running a branded handset business.”



Mr. Yang and other analysts said that Taiwan companies were unlikely to abandon their made-to-order business entirely. Instead, they will focus more on doing more design work on behalf of customers who are trying to outsource more and more of their production.



The iPhone is a great example of where Taiwan is still strong: reliable sourcing, leading technology and complex integration,” said Allen J. Delattre, chief of the electronics and high-technology practice at the consulting firm Accenture. “Does the average person who buys an iPhone know it’s from Taiwan? Maybe. Do they care? Probably not. But if you look at the companies in Taiwan, they are behind the scenes, and that’s a good place to be because that’s where the value is.”



The key for Taiwan companies, Mr. Delattre and other analysts said, is to invest in next-generation products early. For example, companies here are fast becoming important players in the development of WiMax wireless and fiber optic broadband equipment.



They are again getting a healthy push from the government, which is spending more than $200 million over five years to help create the world’s largest high-speed WiMax network. By next year, with 2,000 base stations spread across the island, companies will be able to start testing new applications, like the sending of video from ambulances on their way to hospitals.



“We are trying to make the infrastructure more complete,” said Tsung-Tsong Wu, deputy minister of the National Science Council, which has a $1 billion annual budget. “If the highways are built, companies can go as fast as they like.”











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5 意見

  1. Peggy4:58 AM

    哈, 謝謝你po文還mark 紅色部分,
    這篇文章讀到好多Taiwan, I like it, call me shallow,
    我就是喜歡看到這種台灣- energy and high-tech,
    人小志氣高, 如果我們老師沒有post這篇,
    我一定要印給他看, 哈!
    尤其此篇好多公司名稱都太熟悉了,
    不過到是對倒數第2段存疑,
    因為曾讀過對WiMax的功能, 大概只能在二樓以下,
    即可以坐在starbucks, 丹堤用無線網路,
    高樓層根本接收不良,
    但說真的我也沒試過, 也許現在有改進了吧,
    或許版主回台時可以試試看哦

    Anyway, thanks for your sharing
    Peggy


    ReplyDelete
  2. 我對於台灣無線網路建構的狀況是真的頗好奇
    在紐約現在雖然大多數的公園都有無線網路
    很多居民也可接收到普及全市的免費無線網路訊號(我在家裡就是用這種...)
    不過連線品質的確也不是太好...堪用而已

    至於到Starbucks用網路的話
    雖然品質好速度也穩定...不過卻是要付費的...
    比起來現在台灣免費無線網路的普及程度似乎還是高上不少
    對於這點我還蠻期待的...

    Cheers,

    Rich

    ReplyDelete
  3. Anonymous12:12 PM

    這篇讓我想起一個台灣知名的保X達B廣告...

    "明阿早的氣力,攏甲哩傳便便"

    對那些委外代工的品牌大廠,台灣的公司誠如那廣告一樣
    在各式產品整合能力,未來產品開發上"攏甲哩傳便便"

    雖然在美國電子產品已不太能看到Made in Taiwan的字樣
    但台灣的公司就如同"無名英雄"一樣,成為各大廠成功的推手

    咿...這好像也是類似產品維X比"福氣啦"廣告的某一版本哩(周X發的那個版本)

    周潤發說:「你們是台灣經濟奇蹟幕後的"無名"英雄!]

    如此說來,最了解台灣產業生存模式的人,應該就是上述廣告的廣告公司了耶!?

    呵....

    Chris

    ReplyDelete
  4. yuco3235:49 AM

    有標重點實在是太棒了~~
    因為我總是沒耐心閱讀大量的英文 XD

    ReplyDelete
  5. archtemplar7:27 AM

    to 洋,

    其實別說是你了...我對大量英文的耐心也有限...哈哈


    ReplyDelete

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