Top 2000 Survey : Manufacturing
Embracing the Future with the Internet of Cars
Though seasonal demand for consumer electronics helps Taiwan's ailing manufacturing industry stop bleeding money for now, finding products and services that generate sustainable growth will be crucial for the future development of the manufacturing sector.
Embracing the Future with the Internet of CarsBy Brian Chen
From CommonWealth Magazine (vol. 622 )
Before the middle of last year, "bleak winter" was the most fitting portrayal of the global economy.
In the second half of last year, enterprises around the globe generally felt that the economy was showing signs of warming up again.
The results of the 2017 CommonWealth Magazine Top 2000 Survey for the manufacturing industry clearly show that the economic climate in 2016 was quite capricious.
Total annual revenue for the manufacturing sector declined by 2.8 percent last year, less than the 3.4 percent of the previous year. At the same time, enterprises posted greater profits, with the average profit margin rising to 5.8 percent from 5 percent in the previous year.
Semiconductors Lead Recovery
However, due to the sluggish economy in the first three quarters of 2016, the annual revenue of the two top manufacturers remained somewhat depressed. Although Hon Hai Precision Ind. Co. Ltd. defended its manufacturing sector crown, its annual revenue shrank by 2.8 percent, declining to NT$4.3 trillion.
Second-ranked Pegatron Corporation also saw its annual revenue contract 4.6 percent to NT$1.2 trillion.
Aside from Hon Hai and Pegatron, other industry heavyweights such as Quanta Computer Inc., Compal Electronics Inc., CPC Corporation Taiwan, Formosa Petrochemical Corp. and Uni President Enterprises Corp. all registered shrinking revenues, which resulted in lower rankings than in the previous survey.
As in the past, the semiconductor industry led the manufacturing sector’s recovery. Wu Wan-fang, vice president of Taiwan shares and Greater China investment at Yuanta Funds, notes that the annual revenue growth for the semiconductor industry returned to positive territory thanks to a seasonal uptick in demand for consumer electronics. Of all the semiconductor companies, TSMC put up the best performance.
In this year’s Top 2000 rankings, TSMC grabbed third place for the first time, moving up from sixth in the previous survey. Thanks to the consistent upgrading of its manufacturing processes, TSMC has been able to defend its position as the world's leading dedicated foundry.
In an exclusive interview with CommonWealth Magazine, TSMC Chairman Morris Chang analyzed the company's stellar performance. Relying on its proprietary InFO packaging technology with a 16nm process, TSMC secured all of the chip orders for the Apple iPhone 7. The chip foundry slightly adjusted its prices downward to fend off strong competitors, managing to retain an 80 percent market share for 28nm process technology. Thanks to these two factors, TSMC was able to post annual revenue growth of 12.4 percent in 2016, almost breaking the 1 trillion mark with total revenue of more than NT$900 billion.
"Apple, the Internet of Things, big data centers, broader demand for cloud computing setups and the popularization of such applications," is what Wu regards as the drivers behind the recovery in the semiconductor industry.
A number of experts have pointed out that the rebound of Taiwan's semiconductor industry owes to the fact that several technical concepts such as the Internet of Things, data centers and cloud computing setups are gradually becoming commercialized, for instance in wearable devices and car electronics.
One example is Realtek Semiconductor Corp., a supplier of Californian e-car maker Tesla, which became a top-tier supplier to international automobile brands thanks to its automotive Ethernet solutions. Realtek registered revenue growth of 22.6 percent in 2016, making it into the Top 100 of the manufacturing industry for the first time.
TungThih Electronic Co. Ltd., a manufacturer of reversing radar systems, posted 40.1 percent revenue growth in 2016, soaring to rank 287 from rank 384 in the previous survey. F-share BizLink Holding Inc., which makes connectors for electric vehicles, also joined the Tesla supply chain.
Internet of Cars
It is notable that Taiwan's petrochemical raw materials industry was making money in a low-key manner early in the year even though international raw material prices recovered only in the latter half of 2016.
Despite a 3.4 percent drop in annual revenue in 2016, the petrochemical raw materials industry's after-tax net profit bucked the downward trend, growing an average 73.1 percent. With a net profit of NT$12.38 billion, petrochemicals remained the most profitable sector. "Output shrank, but because cost (oil price) declined, the profits of the petrochemical industry rose," remarks Stephen Su, director of ITRI's Industrial Economics and Knowledge Center.
Thanks to their net profits after tax, Taiwan's four petrochemicals giants - Formosa Petrochemical Corp., Formosa Chemicals and Fibre Corp., Formosa Plastics Corporation and CPC Taiwan - emerged as surprisingly profitable enterprises, seizing ranks 3, 5, 6 and 7, respectively, in terms of profit margin.
The four core members of the Formosa Plastics Group - Formosa Petrochemical Corp., Formosa Chemicals and Fibre Corp., Formosa Plastics Corp. and Nan Ya Plastics Corporation - posted their second-highest profit margin in the conglomerate's history, following a record high in 2007.
Also quietly making money is the raw metals industry. Affected by the economic downturn, the annual revenue of the raw metals industry declined 4.2 percent, but average net profit after tax posted explosive growth of 914.5 percent.
Steel industry bellwether China Steel Corporation (CSC) managed to reverse the downward revenue trend of the first three quarters in the last quarter of 2016. The company registered annual revenue growth of 2.8 percent in 2016, earning 13th place in the overall ranking.
The machinery industry also benefitted from the warming economy. Ministry of Economic Affairs statistics show that the industry's U.S.-dollar-denominated export orders for the whole year did not decline as quickly as before, and that orders actually began to increase again in the second half of the year.
The industry's model student - Hiwin Technologies Corp., swept away the recession haze to post revenue growth of 8.3 percent in 2016.
Gordon Sun, director of the Macroeconomic Forecast Center at the Taiwan Institute of Economic Research (TIER), notes that the island's manufacturing industry only returned to normal levels in the second half of 2016. But because the 15-year base line is low, the manufacturing sector generally registered marked revenue growth in the latter half of 2016.
Sun believes that Apple-related products, such as the iPhone 8, which account for nearly 40 percent of manufacturing output, will remain the main growth driver for the sector.
Yuanta Securities Investment Consulting Co. chief economist Woods Chen points out that car electronics are also a coming growth trend as electronic controls and instruments become more important in conventional cars and electric vehicles. MediaTek Inc. announced at the beginning of 2017 that it will delve into the development of chips for self-driving vehicles.
New technologies are rewriting the way we go about our everyday lives, testing whether we can quickly adapt to the new rules of the game.
Translated from the Chinese by Susanne Ganz