| Prime News | | ![]() | ![]() | FPG May Join Hands With REC for Polysilicon Production
Taipei, Oct. 12, 2007 (CENS)--In view of the huge market demand resulting from the fast development of the photovoltaic industry, Formosa Plastics Group appears poised to step into production of polysilicon, perhaps in cooperation with Renewable Energy Corp. (REC) of Norway, the world's third largest polysilicon supplier.
The possible joint venture may take a major step forward, when Formosa officials meet with Erik Thorsen, president of REC, who flew to Taiwan for a business trip yesterday (Oct. 11).
Li Chih-chun, chairman of Formosa Plastics Co., confirmed the group's determination to enter the polysilicon market yesterday when attending a seminar held by Taiwan Stock Exchange but refused to identify its cooperative partner for the project, ruling out Siemens, though, due to the low yield rate of the latter's manufacturing process.
Industrial insiders noted that FPG is in an advantage position to develop polysilicon production, citing its abundant factory building experience, the availability of spacious factory land in the Yunlin offshore industrial zone, and demand of its subsidiary Formosa Sumco Technology Corp, a silicon wafer maker whose products can also be used as solar-cell substrates.
FPG will join some other domestic chemical firms for the polysilicon rush including Lee Chang Yung Chemical and USI Corp. Lee Chang Yung has formed a polysilicon joint venture with Epistar, an LED material maker, and is looking for factory site for the operation. USI has also formed a similar joint venture with some partners for a polysilicon project, which entails investment of NT$12 billion.
Market insiders predict that despite inauguration of some new polysilicon plants next year, the chronic global polysilicon shortage will not get relieved until 2010, due to the rapid expansion of the global solar-cell industry, whose output is expected to jump 60% to 280 MW (megawatts) this year.
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| | ![]() | | | KMT Presidential Nominee Ma Proposes "623" Economic Goal
Taipei, Oct. 12, 2007 (CENS)--Vowing to make economic issue a center piece of his platform, opposition KMT presidential nominee Ma Ying-jeou put forward the "employment triangle project" yesterday (Oct. 11), as part of the effort in achieving the "623" economic goal.
The triangle project aims to speed up development of three service sectors, wealth management, tourism, and health care, to create a large amount of job vacancies, so as to cut the unemployment rate to 3% by 2012, a component of the "623" goal, which also envisions to boost the annual economic growth rate to 6% and raise per capita income to US$20,000 by 2011.
Ma unveiled the program at a Taiwan investment forum sponsored by Citigroup Global Markets Securities.
Ma noted that overseas securities investments by local people topped US$41 billion last year and US$28 billion in the first half this year, putting a damper on the development of domestic wealth-management business. He proposed to overhaul the financial and taxation systems in the direction of internationalization and liberalization, emulating Singapore and South Korea, so as to enhance the international competitiveness of the domestic wealth-management industry, with the aim of creating 30,000 job vacancies in four years and augmenting its contribution to the GDP to NT$1.3 trillion.
For promoting tourism industry, Ma proposed to open up visit of Chinese tourists to Taiwan, raising the daily quota for Chinese tourists to 10,000 in four years, up from 3,000 initially, in hopes of creating NT$200 billion annual tourism income, as well as 100,000 job openings in four years. To achieve the goal, he called for setup of an NT$30 billion fund for improving tourism facilities.
Ma also urged to develop the medical tourism market, which can create 30,000 job vacancies in four years. He noted that the global medical tourism market is expected to hit US$26 billion this year, which may rise to US$40 billion by 2010.
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| | ![]() | | | FPG's Four Major Subsidiaries See Promising September
Taipei, Oct. 12, 2007 (CENS)--Formosa Plastics Group's four major subsidiaries, including Formosa Plastics Corp. (FPC), Nan Ya Plastics Corp., Formosa Chemical & Fibre Corp. (FCFC) and Formosa Petrochemical Corp. (FPC), saw substantial growth in sales in September.
Both Nan Ya and FCFC saw September sales hit a historic high. FPC saw September sales grow the least at 31% year-on-year. Other three firms each scored over 40% sales growth in that month.
FPG noted it posted NT$118.4 billion (US$3.64 billion at US$1:NT$32.5) and NT$946.1 billion (US$29.66 billion) in sales in September and the first nine months of this year, respectively. It is estimated the group will see overall sales break the NT$1 trillion (US$30.76 billion) mark in October.
An institutional investor said FPG will be the bellwether to lead the TSE (Taiwan Stock Exchange) weighted share prices go beyond 10,000 points. Based on their strong profitability, each of the FPG's four major subsidiaries will see share prices go beyond NT$100 (US$3.07) per share in the foreseeable future.
FPC scored NT$15.418 billion (US$474.4 million) in sales in September, down 6.6% from the preceding month's NT$16.522 billion (US$508.36 million). The company attributed the slight decline in monthly sales to the slowdown in such general-purpose plastics as PE (polyethylene). In addition, the mainland's demand for the general-purpose plastics has been slowed because of the long holidays since Oct. 1.
Foreign institutional investors are fully confident of the prospects for FPC as the plastics tycoon will definitely continue to explore overseas markets to realize its corporate vision. Over the past one month, foreign institutional investors have increased investments of 10 million shares of FPC. Many targeted FPC share prices at around NT$110 (US$3.38) per share.
After securing a new production capacity of 600,000 metric tons for EG (ethylene glycol) in June, Nan Ya has posted historic high records in sales in three months in a row since July. The company scored NT$21.193 billion (US$652.09 million) in September sales.
An institutional investor predicted Nan Ya will see substantial growth in sales and earnings in the fourth quarter of this year as the company has seen yearly production capacity of EG reach two million metric tons. Some investors believed Nan Ya's share prices will go beyond NT$100 (US$3.07) per share in the foreseeable future. Over the past few days, Nan Ya's share price has been hovering between NT$90 (US$2.76) and NT$95 (US$2.92).
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| | ![]() | | | Vedan Acquires Production, Marketing Agent Rights From Pepsi Cola
Taipei, Oct. 12, 2007 (CENS)--Vedan enterprise Co., one of Taiwan's leading producers of food and beverage, has acquired five-year production and marketing rights from the internationally renowned beverage brand—Pepsi Cola for its three major brands, including Pepsi Cola, Warinta and 7-Up.
In the past, Pepsi Cola authorized Uni-President Enterprises Co. for marketing its beverage with Fonen & Fonher Enterprise Co. as a contract manufacturer, in Taiwan.
After obtaining the production and marketing agent rights, Vedan will see sales of Pepsi Cola-series products amount to NT$500 million (US$15.38 million at US$1:NT$32.5) in the first operating year, compared to NT$420 million (US$12.92 million) sales of the products in Taiwan last year.
A Vedan executive said of Pepsi Cola beverage currently account for 80% up to 90% of the total sales for the three major Pepsi Cola brands, with Warinta and 7-Up commanding the remaining 10% up to 20%.
Vedan noted it would first enhance brand recognition of Pepsi Cola beverage before launching marketing deployment for Warinta and 7-Up brands.
The world's largest producer of carbonated beverage—Coca Cola had a 40% market share in Taiwan in the first half of this year, compared to a mere 4% up to 6% for Pepsi Cola.
To catch up to the rival Coca Cola, Vedan and Pepsi Cola will collaboratively set up a marketing fund to facilitate product advertising, event promotion and image building in Taiwan.
To cope with future growth, Vedan has modestly adjusted its corporate organization, including the promotion of assistant vice president Chou Hai-kuo to vice president.
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| | ![]() | | | Synnex, Microsoft Team on Windows Mobile Promotion
Taipei, Oct. 12, 2007 (CENS)--Microsoft Taiwan and Synnex Technology International Corp. recently signed a pact to co-promote Microsoft's Windows Mobile handsets, signifying Microsoft's first such strategic alliance deal in Asia for the smart phone.
According to the agreement, the two signatories will take advantage of each other's established distribution channels and related resources to push Windows Mobile phones on the market.
Pieter Knook, a senior vice president of Microsoft's mobile business group, said Windows Mobile had emerged as the fast growing operating software for mobile phones in terms of market share gain. He added that Microsoft will supply Synnex Technology with education training and marketing resources associated with Windows Mobile. In the meantime, Synnex will specifically set up a team to offer Windows Mobile service to mid-and-small businesses, big businesses, and telecom carriers as well as offer Windows Mobile retailers necessary trainings.
Synnex Chief Executive Officer (CEO) S.W. Du said that cooperating with Microsoft will allow his company's Windows Mobile team to offer more marketing assistances and supports to contract suppliers of Windows Mobile smart phones, telecom carriers, retailers, and developers of applications software for Windows Mobile phones.
According to market-research organization IDC, the global shipment of Windows Mobile phones for 2006 shot up 135.3% from a year earlier, nearly three folds the average pace for smart phone market as a whole and ten times the average rate for talk-only phone market. IDC forecasts Windows Mobile market to grow around 61.6% annually between 2006 and 2010, nearly twice the rate for global smart phone market in the meantime.
Synnex is rated as Taiwan's biggest retailer of information-technology products, with 2006 consolidated sales totaling NT$408.8 billion (US$12.3 billion at US$1:NT$33).
Shortly after the Synnex-Microsoft deal announced, Xander International Corp., another leading Taiwanese IT-product retailer, signed an agreement to distribute HTC Corp.'s 3.5-G smart phones and the Amsterdam-based TomTom NV's portable navigation devices (PND), marking its first step into telecom-product business.
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| | ![]() | | | Top Two Silicon Foundries Axe Capital Expenditures
Taipei, Oct. 12, 2007 (CENS)—Taiwan Semiconductor Manufacturing Co. (TSMC) will likely spend 17% less capital next year than this year on expansion while nearest rival United Microelectronics Corp. (UMC) will likely cut 27% capital expenditure next year from this year's level.
For the first time in five years, the top two silicon foundries slow down expansion paces, suggesting their downbeat forecast for market for 2008.
According to people with direct knowledge of TSMC's 2008 capital spending plan, TSMC will shrink the spending to US$2.2 billion next year from US$2.6 billion set for this year. In addition, the world's No.1 silicon foundry acquired used 200mm tools from U.S. chipmaker Atmel Corp., suggesting the company now prefers to acquired refurbished equipment to buy brand new ones.
UMC is said to spend only US$800 million on expansion next year, a shrinkage from this year's US$1.1 billion.
TSMC and UMC said they will not officially release their 2008 spending plans until early next year.
Industry watchers pointed out that excessive supplies of 300mm wafers and eagerness to see returns from investments in leading-edge process technologies have inspired the top two silicon foundries to cut spending next year. On the other hand, cutting capital spending will enable the two companies to relieve impact from institutionalization of employee bonus on their profit taking performances. The cutting will also help them ease impact from business slowdown.
Over the past five years, TSMC and UMC have flowed a moderate capital-spending policy for fear that they would again run into same mistakes they made in 2000 by over expanding capacities.
However, their investment slowdown will deal a heavy blow to chip-making equipment suppliers at home including clean-room builders United Integrated Services Ltd. and L&K Engineering Co., Ltd.; equipment dealers Topco Scientific Co., Ltd., Hauman Technology Corp. and Gallant Precision Machining Co., Ltd.; and contact probe supplier MJC Probe Inc.
In spite of spending cuts at the top two foundry suppliers, Taiwanese dynamic random access memory (DRAM) chipmakers including Nanya Technology Corp., ProMos Technologies Inc. and Inotera Memories Inc. have kept expanding capacities at bold speed. Industry watchers pointed out local DRAM chipmakers would slow down expansion pace once the market goes down next year.
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| | ![]() | | | Contract Notebook PC Makers Asked to Ship More Items by Sea
Taipei, Oct. 12, 2007 (CENS)--To cut costs, some big international notebook PC brands have required Taiwanese contract suppliers to ship more products by sea and less by air, according to local notebook PC companies.
Big customers who have asked for such shipment-mode changes include HP, Acer, Lenovo, etc.
Market insiders think that such requirement would impact the China Direct Shipment (CDS) delivery mode adopted by major Taiwanese contract notebook PC makers.
Industry insiders said that the increasingly fierce competitions in global notebook PC market drove the said international brands to ask their Taiwanese contract producers, including Quanta Computer Inc., Compal Electronics Inc., Wistron Corp., etc. to ship more products via marine cargo, with such sea-to-air ratio rising to further cut costs.
The sources said that Taiwanese companies have been very successful with their Taiwan Direct Shipment (TDS) and CDS delivery mode—meaning that they can ship directly from their production plants in Taiwan (earlier years) and mainland China to customers by air cargo within two to three days after receiving customers' orders.
The cost of marine transportation is only about one-tenth of air cargo. Local notebook PC makers are carefully watching that if other major brands such as Dell will also require its contract suppliers to do the same.
As marine transportation takes much longer, most Taiwanese notebook PC makers deliver their products, most of which are lower-cost and mature-specification models, to markets such as India and other Asia-Pacific nations by sea, rather than value-added and new-specification models.
As the global notebook PC market turns increasingly mature, prices of key parts continuously go down, and equipment variations decrease among different brands, industry sources said, the suppliers' typical strategy of delivering small-batch, large-variety orders has turned increasingly less profitable. This is another factor driving big brands to ask contract suppliers to deliver products by sea, they added.
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| | ![]() | | | Parexel Acquires Taiwan CRO Apex International
Taipei, Oct. 12, 2007 (CENS)--Parexel International Corp., a leading global biopharmaceutical services organization, recently announced completion of the acquisition of Taiwan–based contract research organization (CRO) Apex International Clinical Research Co., Ltd.
The acquisition strengthens Parexel's global capabilities, providing clients with a wide range of clinical research service offerings throughout the Asia-Pacific region, including Taiwan, mainland China, Hong Kong, India, Singapore, Indonesia, South Korea, Malaysia, Thailand, the Philippines, New Zealand, and Australia, Parexel claimed.
After the stock acquisition, the newly combined firm of Parexel and Apex will soon be renamed Parexel Apex International.
Parexel (Taiwan) Inc., a wholly owned subsidiary of Parexel, initiated a tender offer late June, which was accepted with Parexel acquiring 20.3 million shares of common stock of Apex, representing 93.9% of Apex's total issued and outstanding shares, for about US$50.9 million.
According to Albert Liou, founder of Apex and newly-appointed corporate vice president and general manager of Parexel Apex International, Apex's diverse client base will greatly benefit from the combination with Parexel, which will provide a broader global scope and the ability to offer a wider array of capabilities for clinical programs. "The Apex team is eager to combine Parexel's considerable experience in clinical development with Apex's extensive knowledge of medical and clinical development practices and approaches that are specific to the Asia-Pacific region," he said.
Currently, Liu said, Asia accounts for only 2% of the global CRO market, which owns an annual market value of about US$16 billion. Various major international pharmaceutical companies have in term come to Asia for conducting new-drug clinical tests through CROs in mainly mainland China, Taiwan, India, and South Korea.
To deploy its Asia business, Parexel had already acquired a 5% stake in Apex for US$750,000 in 2003.
"The Asia-Pacific region is becoming increasingly important and attractive for a wide range of clinical development activities," stated Josef von Rickenbach, chairman and CEO of Parexel International. "Several factors are driving client demand for clinical research services in the Asia-Pacific region including established and sophisticated healthcare systems in many countries, the availability of highly trained professionals, and attractive end markets for biopharmaceutical products. We believe that the acquisition of Apex is of great strategic value, and combined with Parexel's existing presence in Japan, India, and Australia, will make Parexel a formidable competitor and one of the leading providers of biopharmaceutical services in the Asia-Pacific region."
Parexel claims that it is a leading global biopharmaceutical services organization, providing a broad range of knowledge-based contract research, medical communications and consulting services to the worldwide pharmaceutical, biotechnology and medical device industries.
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| | ![]() | | | Gov't Organizes Team to Seek Biz Opportunities in Saudi Arabia
Taipei, Oct. 12, 2007 (CENS)--To seize business opportunities in the oil-rich Middle East, Vice Economics Minister Fa-ta Hsieh is going to lead a delegation to Saudi Arabia by the end of this month.
The delegation is reported to be composed of both private and government-owned enterprises, and among those showing strong interest are Formosa Petrochemical Corp., USI Far East Corp., China Petrochemical Development Corp., Kuo Kwang petrochemical Co., Farglory Group, Teco Electric & Machinery Co., and Grand Pacific Petrochemical Corp.
To better control oil resources there, the government-linked enterprises including Taiwan Power Co., Taiwan Water Corp., and Taiwan Cogeneration Corp. have decided to form an investment group to cooperate with prospective partners in Saudi Arabia to jointly establish an oil-fueled electric power plant and a desalination plant to make fresh water from seawater. The total investment capital of the two projected plants is estimated at US$3 billion, and Taiwan's investors will account for 18% of the joint venture or US$540 million (about NT$3.6 billion).
Hsieh indicated that Saudi Arabia has seen obvious increase in revenues in recent years due to rising oil prices globally. Being cash rich, Saudi Arabian government is planning to funnel in US$106 billion before 2009 to reinforce the infrastructures of its six cities. The projected capital will be mainly used for the constructions of harbors, railroads, highways, and airports of the said six cities. It is believed that before 2020 the business opportunities generated by the country's planned infrastructures may total a huge US$690 billion.
Hsieh emphasized that the countries in the Middle East are major suppliers of Taiwan's petroleum and these oil-rich countries are good places for Taiwan's ambitious investors. He urged that Taiwan's interested investors had better grab investment opportunities in the Middle East sooner than later.
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| | ![]() | | | Cathay Financial Holding Eyes Record Profits of NT$30 B. for First 9 Months
Taipei, Oct. 12, 2007 (CENS)--Taiwan's financial holding companies (FHCs) are expected to see stable growth in profitability in September, with Cathay Financial Holding estimated to rake in record profits of NT$30 billion (US$909 million at US$1 = NT$33) in the first nine months of this year.
Other FHCs with banks as their major affiliates are estimated to see steady increase in profits in September since most of their banks have gradually recovered from the impact caused by twin-card loan defaults. In the same month, the FHCs with securities firms are also to see better profits than a month earlier.
In the first eight months Cathay Financial witnessed its profits accumulate to NT$29.6 billion (US$896.9 million) and its two major affiliates—Cathay United Bank and Cathay Life Insurance Co.—seemed to gain pretty good profits in September, so it is very likely to see profits break the NT$30 billion (US$909 million) mark in the first nine months.
Usually the profits of most Taiwan's FHCs depend on the performance of their banking affiliates. Yuanta Financial Holding, for instance, is predicted to experience a slight loss of more than NT$20 million (US$606,060) in the first nine months since its banking affiliate posted a sizable loss of NT$250 million (US$7.6 million) in September alone.
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| | ![]() | | | HTC Selects Celestica as Contract Supplier for Foothold in Latin America
Taipei, Oct. 12, 2007 (CENS)--The Taiwan-based High Tech Computer Corporation, a world-class supplier of mobile phones, has already signed a contract with Canada's Celestica Inc., an electronics manufacturing service (EMS) company, to have the latter's Brazilian plant supply its products starting next year to penetrate the Latin American market, according to company sources.
Facing a high tariff barrier in the Latin American market, most Taiwan's handsets suppliers, which boast ample capacity and are unwilling to outsource production, can't help but build their own plants or work with EMS companies locally to penetrate the market.
Thus, this is also the first time for HTC to outsource mobile phones, when the company, which hasn't had any plant sited abroad, once planned to set up an own manufacturing plant in Honduras in September.
It was reported that HTC already announced cooperation with Celestica, with the latter to set up a plant in Brazil to produce PDA phones and smartphones for HTC. In fact, however, Celestica had started manufacturing HTC's phones on a trial basis since last October.
At the moment, HTC outsources seven models out of nine sold in the Latin American market from Brazil, which are mainly for sales in the Brazilian market. Furthermore, Celestica will start to produce handsets for HTC to sell in other markets in Latin America.
Cesar Keller, HTC's director in charge of sales in Latin America, noted that mobile phone sales in the Brazilian market amounted to about 30 million units in 2006, with 1% or 300,000 smartphones and PDA phones adopting Microsoft's operating systems. He projected a penetration rate of those models in the market to move up to 1.5-2% this year and 3-4% in 2008.
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| | ![]() | | | Wistron Snaps Up Big Orders From Dell
Taipei, Oct. 12, 2007 (CENS)--Wistron Corporation, one of the world's leading suppliers of notebook PCs, has reportedly won big orders from Dell, according to Goldman Sachs, a globally well-known securities company.
The orders are for an updated version of Dell's Inspiron series notebook PCs, which were originally supplied by Quanta Computer Inc., the biggest supplier of this kind in the world, for sale in the consumer market.
Wistron, which also landed other big orders from Dell earlier, is scheduled to produce the new version for the brand starting next year, making institutional investors adjust Wistron's shipment up to 19 million notebook PCs from an initial projection of 17.6 million units for next year.
A report issued by Goldman Sachs indicated that Wistron recently won orders for some 3 million consumer notebook PCs from a large-sized original equipment manufacturing (OEM) company in the U.S., and will fill the order starting from the second quarter of 2008 for a period of one year. The big order alone is expected to contribute more than 1.4 million notebook PCs to Wistron's shipment to reach a total of 19 million units next year.
Insiders revealed that the order was supposedly placed by Dell, which has ventured into the distribution channel market this year and promoted a series of consumer notebook PCs. Among the most popular models are its Inspiron series, which feature eight available colors and are supplied by Quanta at present. Thus, based on quantity and delivery time, it is believed that the order obtained by Wistron is for Dell's updated version of the Inspiron series.
Wistron has outbid Quanta in the race for Dell's orders for notebook PCs this year, as the former has won an order for mainstream 15.4-inch models earlier and the new big order for 14.1-inch consumer models. Consequently, Wistron is expected to post shipment of 19 million notebook PCs for next year, sharply growing by 70% from this year, and to outpace Compal Electronics Inc. as the strongest supplier by shipment growth in the sector.
On the other hand, although losing Dell's orders to Wistron, Quanta still expects its shipment to increase to 35 million notebook PCs for next year from 28 million units to be posted this year, thanks to its two biggest clients Apple and HP, which are both world-leading brands that expect to see sizable growths in notebook PC sales. Quanta will remain the leader globally among notebook PC suppliers.
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| | ![]() | | | Arima Sells Notebook PC, Server Businesses to Flextronics
By QUINCY LIANG
After hanging on for extended periods, Arima Computer Corp., a second-class notebook PC contract producer in Taiwan, recently announced its decision to bail out by selling its notebook PC and server related businesses to Flextronics International, a major electronics manufacturing service (EMS) provider.
Suffering from low margins in the PC market, Arima Computer has finally decided to sell its notebook and server related businesses to Flextronics International, with the deal excepted to total US$200 million, according to Arima.
The deal includes plants, facilities, technologies and assets of Arima's notebook and server businesses, along with company stakes in its subsidiaries in Japan, Texas, California, and the UK, said Arima, adding that the deal will be completed by the end of 2007.
Headquartered in Singapore, Flextronics is a leading EMS provider focused on delivering complete design, engineering, and manufacturing services to automotive, computing, consumer digital, industrial, infrastructure, medical, and mobile OEMs. With fiscal 2007 revenues from ongoing operations of US$18.9 billion, Flextronics helps customers design, build, ship, and service electronics products through a network of facilities in over 30 countries on four continents.
Through the deal, industry sources said, Arima can acquire some capital by selling its notebook PC and sever businesses, which have long been in the red.
Notebook PC Maker to Holding Firm
David Su, president of Arima, said that after the deal Arima would transform into a holding company and focus mainly on optoelectronic and solar-cell businesses, while continuing to be listed on the Taiwan Stock Exchange (TSE) market. Arima's subsidiaries, including Arima Communications Corp. and Arima Optoelectronics Corp. would remain unchanged.
Arima has several reinvested subsidiaries and affiliates, including Arima Communications Corp. (cellphone manufacturing), Arima Optoelectronics Corp. (LED), Arima Display Corp. (LCD monitor), Arima Device Corp. (laser pick-up head), Acme System Technologies Corp. (flash-memory products), Arima EcoEnergy Technologies Corp. (solar-cell module), Aveo Technology Corp. (IC design and image processing), etc. in Taiwan, mainland China, and the U.S.
Currently, Arima is capitalized at NT$10.74 billion (US$325.33 million at US$1: NT$33) and the company registered revenue of NT$1.68 billion (US$50.97 million) in August, and accumulated of NT$12.23 billion (US$370.67 million) in the first eight months.
Notebook PC and server manufacturing make up over 90% of revenues for Arima, which claimed that after the sale its revenue would be zero for a certain period. Currently Arima's planned monthly notebook PC capacity is about 350,000 units while that of server motherboards is about 20,000.
In addition to transformation into a holding company, Sen-tien Lee, chairman of Arima, pointed out that Arima would more actively develop optoelectronics and green energy businesses. The chairman is very optimistic about the future of laser lighting sources and solar-cell sector, and plans to set up incubation centers to cultivate Arima's business development in the related fields.
Through its subsidiaries, according to Lee, Arima plans to develop laser lighting sources to replace LEDs in some futuristic application markets, such as rear-projection TVs and LCD panels. As subsidiaries such as Arima Optoelectronics and Arima EcoEnergy have stepped into solar-cell business, Lee added that his company would engage in both vertical and horizontal integrations, hoping to upgrade Arima Group's annual capacity of solar-cell panels to reach 100 MW in three years.
Arima has been in the red over the past four years and the firm reported loss of NT$978 million (US$29.64 million) in the first half. All of the company's subsidiaries, except Arima Optoelectronics that reported net earnings per share (EPS) of NT$0.32 (US$0.01) in the first half, were still in the red in the first six months of this year.
The Taiwan Stock Exchange Corp. (TSEC) said that when Arima will have handed over all its assets and operations to Flextronics, the TSEC would reevaluate if Arima has stopped being traded publicly.
Arima pointed out that it would comply with TSEC's directions, though it has no plan to stop stock transaction.
Hardship for Second-class Players
Arima's decision to sell, according to some local industry analysts, shows the survival difficulties of second-class notebook PC contract manufacturers in Taiwan. With the trend in which bigger players become increasingly so and mergers between big companies leading to more concentrated big-ticket orders to fewer suppliers, the room to survive for second-class contract notebook PC makers has been decreasing.
Arima originally supplied products to mainly Gateway Inc. of the U.S., which has been acquired by Taiwan's Acer Inc. Most market observers deem that Acer would transfer Gateway's orders to Acer's long-term contract partners such as Wistron Corp., Quanta Computer Inc., Compal Electronics Inc. etc. The industry sources said that the Gateway's possible order transferring was one of the key factors leading to Arima's quick sale to Flextronics.
Arima's Su admitted that the continuous investment in notebook PC contract production would be feasible about five years ago. Now, he explained, first-class Taiwan companies, including Quanta and Compal, command over 80% of the notebook PC contract production market, giving second-class players little room to reach similar production scales.
There are still second-class players surviving in the sector, including MiTAC Technology Corp., Twinhead International Corp., Clevo Computer Co. etc. Among them, Mitac Technology has transformed into an electronic tooling maker after acquisition of affiliated Mitac Precision Technology Corp. and currently keeps only a small part of notebook PC capacity focusing on niche markets. Clevo has turned its focus on developing a big 3C (computer, communication, and consumer electronics) distribution chain in mainland China; while Twinhead, the only second-class player concentrates on its original core business, announced plans to more actively develop military and industrial computer products and is working on some communication items.
Possible Impacts
Flextronics' acquisition of Arima's notebook PC and server business has shown the leading EMS provider's strong ambition in developing notebook PC business. In addition to possible impacts on the market leaders such as Quanta and Compal, some institutional investors said that the long-term effects of Flextronics' aggressive moves must not be overlooked.
Some institutional investors predicted that Flextronics' move might accelerate Hon Hai's acquisition moves. In addition to R&D staff taken over from Arima, other investors said Flextronics might continue to recruit notebook PC R&D talents in mainland China and prepare for a big jump in such business in the future.
Backdoor Pusher
Arima's president Su was the major backdoor pusher in his company's deal with Flextronics, leading to the deal having been signed privately rather than via investment banks.
According to Chinese-language economic daily newspaper Economic Daily News (EDN), Su wrote a book describing how major Taiwan electronic manufacturers act like hungry wolves in the grassland (international market) seeking targets to devour. So, he suggested chairman Lee sell the unprofitable notebook PC plant, so as to escape from being swallowed by such "wolves."
Su pointed out that Flextronics had been eagerly contacting various notebook PC manufacturers in a bid to step into the targeted new business. He disclosed that Flextronics and Arima began negotiations about half a year ago, which preceded with the two parties having worked together on notebook PC and server products.
Su was the former president of Compal's communication business but left to work for Arima in 2006. Industry insiders said that Arima chairman Lee originally was somewhat reluctant to let the notebook PC business go because it was his career starting point, but finally Su succeeded in swaying the chairman. (September 2007)
Caption 1: Arima chairman Sen-tien Lee.
Caption 2: The company's president David Su. | |
| | ![]() | | | Domestic Airlines Slash Prices to Keep Flying
Taiwan's domestic air carriers are slashing prices in an effort to bring a halt to the precipitous plunge in their passenger load factors following the inauguration of the high-speed rail early this year. Industry insiders say that this strategy will at best buy some extra time before the airlines inevitably go under--unless they can successfully develop international routes or, most critically, the government can open up direct flights across the Taiwan Straits.
On Sept. 27, TransAsia Airways announced a decision to slash its tariff for Taipei-Kaohsiung flights to NT$1,130, not much more than half of the original list price of NT$2,110 and NT$360 lower than the Taipei-Zuoying (in Kaohsiung City) high-speed rail fare. TransAsia also doubled the frequency of its Taipei-Kaohsiung round trips to six daily.
The TransAsia move climaxed a recent round of domestic fare cuts initiated by Mandarin Airlines on Sept. 17, when the carrier lowered its Taipei-Kaohsiung fare to NT$1,490, NT$100 cheaper than the high-speed rail. Far Eastern Air Transport and Uni Air immediately followed suit.
The price cuts are obviously designed to check a further slide in load factors on domestic flights, as the impact of the high-speed rail has proved to be much greater than the original expectation.
In the first eight months of 2007 the domestic airline market shrank 23% year-on-year, with the number of Taipei-Kaohsiung air passengers in August plunging 68.7% and the number of Taipei-Tainan passengers slumping 72.6% as the high-speed rail boosted its frequencies. The Taipei-Kinmen route was the only domestic flight route that recorded a growth in the first eight months, advancing 4.2% thanks to restricted direct passenger links to Chinese ports via Kinmen.
Load factors on Taipei-Kaohsiung flights have dropped to 45%, down from 70-80% in late 2006, and all domestic airlines are awash in red ink. Far Eastern, the largest of the lot, suffered after-tax losses amounting to NT$311 million (US$9.4 million at NT$33:US$1), or NT$0.56 per share, in the first half of the year.
The severe flood of red ink prompted Mandarin Air to halt its Taipei-Taichung flights on May 1, only four months after the inauguration of the high-speed rail. In August, Uni Air shut down its Taipei-Chiayi flights.
Worst Times to Come
The plight of the airlines is expected to deteriorate further in late November, when one-way high-speed rail departures are scheduled to rise to 60 per day.
While industry insiders agree that price cuts are inevitable if the domestic airlines are to keep their planes in the air, they note that the strategy is unsustainable in view of soaring fuel-oil prices, which now account for 30-40% of the airlines' total operating costs.
The airlines have long been aware of their gloomy domestic prospects, and have been working hard to develop international flight services. Far Eastern now flies from Taipei to Jeju island in Korea more often than it operates Taipei-Kaohsiung, driving down the share of the domestic flight business in its overall revenues to only 35%.
Far Eastern has opened up flights (using Chinese airline partners) to four Chinese cities--Shanghai, Beijing, Shenyang, and Hangzhou--via Jeju. Flights to Qingdao and Wuxi will be added by year-end, along with the inauguration of charter flights to Japan.
TransAsia is nearing completion of preparations to set up a joint-venture domestic airline in China with Sichuan Airlines; the venture is expected to be incorporated in Shanghai, and to begin operating by mid-2008. TransAsia is also in talks with a Pusan association of industry and commerce for the establishment of a joint-venture airline there to operate domestic flights in Korea.
In addition to pushing tourist flights to off-shore islands and transport links with China via Kinmen and Matsu, Uni Air plans to inaugurate charter flights from Taichung to Hong Kong and Ho Chi Minh City. Mandarin plans to develop international flights from Taichung.
Ultimately, though, Taiwan's domestic airlines pin their hopes for survival and growth on the inauguration of direct flights across the Taiwan Straits. Fan Chih-chiang, chairman of TransAsia, laments that "The failure to inaugurate direct cross-straits flights, which was once widely expected by the industry, has been the greatest disaster for the domestic airline industry." (PL, Oct. 2007) | |
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