Making Key Decisions to Success
The world's number one name in switching power supplies has enabled Delta Electronics to yield stable profits. Yet the company has another ace in the hole: industrial automation.
Making Key Decisions to SuccessBy Liang-Rong Chen
From CommonWealth Magazine (vol. 558 )
Judging by product structure alone, Delta Electronics is Taiwan's most Google-like company.
Both dominate a market with products that practically "print money" for them, bolstering the boss's various whims and inspirations that result in piles of innovative new products for the company.
Google's on-line advertising – increasingly like a gold mine for the company – has enabled its R&D personnel to go full on with development of Google Glass, Google Maps services, and even driverless cars.
Delta does not just step back and watch the world go by, either. On the strength of stable profits from its status as the world's largest supplier of switching power supplies, it has fostered such advanced technology as voice recognition systems, electronic books, rear projection displays, solar tracking systems, and electric vehicles, though the profitability of which has yet to become clear.
The genesis of these products can be traced to Delta founder and CEO emeritus, Bruce Cheng, and his pure passion for technology.
Having been subjected to the cruel tests of the market, numerous startup enterprises Cheng had high hopes for have quietly been shut down, among them solar energy and electronic paper businesses that grabbed considerable attention at one time. Meanwhile, the company's electric vehicles interest have been downsized in favor of selling automotive parts and components.
Delta Chairman Yancey Hai announced that Delta branded LED light bulbs, so prominently displayed at convenience stores around Taiwan only recently, would be discontinued once existing inventory is sold. A frustrated Hai stated flatly, "Consumer products are too difficult a business."
In spite of the failure of all of these major new investment enterprises, Delta Electronics has managed to go against the tide and achieve growth in both revenue and profitability, even setting records. Accordingly, the company's stock has rapidly doubled over the last year, setting a 17-year-old record per share price. How has Delta Electronics done this?
New Golden Goose: Industrial Automation
The answer lies in the Guishan Industrial Zone Delta got its start in. The brand new Taoyuan R&D center, and the Industrial Automation Business Unit led by Delta veteran and senior vice president Simon Chang.
This golden goose, which has kept a low profile for years, claims 600 engineers in R&D, and 8000 employees in Taiwan and China combined. Thanks to robust Chinese demand, sales volume is expected to exceed NT$20 billion this year, passing Hiwin Technologies to move into position as Taiwan's top name in automation.
"We've actually been Taiwan's biggest for years," says Simon Chang with a chuckle, only Bruce Cheng strategically insisted the business unit keep a low profile to keep from provoking Japanese competitors.
On the motor assembly line nearby at the number three Taoyuan plant, robotic arms embossed with "Delta" on them move rapidly. This is the secret weapon Delta will take to market next year – its own-branded robots.
Riding the increasing synergy of production lines, in three years automation will become Delta's most profitable product line, surpassing even the switching power supplies that have been the company's core business and led the world for years.
For Delta Electronics, this is a major paradigm shift. And all of it comes out of several critical choices Bruce Cheng made over a decade ago.
Critical Decision #1
Optical Drives Out, Automation In
In early 2000 Delta Electronics followed many of its industry cohorts and leapt into the optical computer drive business. And Simon Chang happened to be in charge of that business for Delta.
In 2001, Delta Electronics consultant and director of the MIT Computer Science and Artificial Intelligence Laboratory, Victor Zue, outlined a not-so-distant future for Delta executives: as bandwidth gets bigger rapidly, data storage and computing will be done at the remote end, and consumers will not need to store large amounts of data on their own.
This was the formation of "cloud computing" so familiar to today's high tech industry. Accordingly, computer guru Zue – a former consultant for Microsoft and Intel – came to the conclusion that optical media would become obsolete, and advised Delta Electronics to get out of the optical drives business.
"We thought he made a lot of sense," recalls Bruce Cheng.
Optical drives were all the rage at the time, trebling the stock price of Lite-On IT Corp., a subsidiary of Delta rival Lite-On Group, to nearly touching NT$300 per share in 2002. Yet Delta, in the middle of Taiwan's biggest year ever for optical media, shut down its optical media business.
Simon Chang went quickly about the decision to shut down the optical media business, transferring over 30 R&D staff with either master or doctoral degrees to the automation department to develop four all-new products.
He explained that the core capacities optical drive design demanded, namely precision machinery, server control and software interfaces, are precisely the core technologies needed for industrial automation.
With the product line completed, it formed the foundation for explosive growth in Delta's automation business over the subsequent five years. By 2010, revenues from the automation department reached US$450 million.
Rapid retreat from optical devices to achieving resounding victory on the automation battlefield, the decision making behind such bold investments and well-timed moves is one of Bruce Cheng's less known leadership qualities.
"Delta is an innovative company that invests in a lot of innovative technologies," explains Simon Chang. However, oftentimes when the product enters the market they discover that the timing is not quite right, so "the people at the top must have the wisdom to pull out at the right time," he adds.
"We are always finding new things to do, and failures are bound to occur. But we also adjust and change quickly," relates Bruce Cheng.
Critical Decision #2
Promoting "One Delta"
Another engine powering Delta's future growth is the energy-saving cloud datacenter, used by both Google and Facebook. This cloud computing solution bridges the Delta Group's power management, uninterruptable power supplies, and other Internet communications parts into one. Dubbed "One Delta", the system is the lynchpin for Delta's efforts to move from parts to systems supplier, and the fruits of interdepartmental cooperation that make Yancie Hai proud.
A few years ago, Delta Electronics, whose product line had become increasingly broad, encountered a sticky situation where its various departments became antagonistic against each other. Delta Electronics independent director and former president of Philips Taiwan, Y.C. Lo, could not stomach what he was seeing and led the way by implementing sweeping reform modeled after Philips' One Philips program, strengthening Delta's internal horizontal linkage. "How else could you get big? How could you become a systems company?" Lo said.
This was the genesis of Delta's call for One Delta starting in 2010.
The first step in that direction was bringing major subsidiaries back under control of the mother company.
Two companies, including passive components maker Cyntec, a publically- traded company in Taiwan in which Delta held 36 percent shares, and DNI Delta Networks, a publically-listed company in Hong Kong in which Delta held 61 percent shares, successively unlisted after 2010 to become re-absorbed under Delta Electronics.
With Delta Group support, Cyntec's R&D capacity took off, unveiling the tiny Hot Press Choke in 2013 to quickly become the exclusive iPhone 5S supplier. According to research from the Industrial Economics & Knowledge Center (IEK) of the Industrial Technology Research Institute, a single iPhone uses up to 20 hot press chokes.
Critical Decision #3
Saying No to Big Orders
Few people know that Delta Electronics has engaged in the ODM manufacturing of televisions and displays, and not on an insignificant scale. In fact, in early 2000 it was poised to go up against major television contract manufacturers Wistron and Hon Hai.
In 2007, Bruce Cheng made an arduous decision, saying "No" to orders that Sony offered for ODM manufacturing of affordable LCD televisions. And he did that in full knowledge that such an order could increase Delta's sales several times over nearly overnight.
Sony and Samsung were at a critical point in their battle for supremacy in the TV market, going at each other with such force that it sent the entire industry into an era of meager profits. Bruce Cheng feared that if Delta accepted Sony's orders it would have to go along and expand production, and possibly set itself up for an over commitment from which it could end up bleeding money, unable to extract itself.
On the other hand, he knew that he had a stable of engineers with years of experience developing TV technology itching to give it a go. "They attracted orders because of their outstanding technical prowess, so when the orders came it was difficult not to take them. Frankly, it would be embarrassing!" admits Cheng.
Cheng ultimately made a decision that surprised many. He transferred Sony's orders and a portion of Delta's R&D personnel to Wistron, seizing the moment to terminate Delta's television and display businesses.
Looking for a way to explain why he is not fond of OEM manufacturing, Cheng stressed a key point: he hates laying people off. "You go out and find all these people, and when business drops you have to lay some of them off, which is very painful," he relates.
Never Be A Slave Driver
For over the past decade Delta Electronics has come under question from foreign investors, who have asked, 'Other than power supplies, what other growth engine do you have?"
A decade ago the answer would have been such "video products" as rear-projection TVs, LCD TVs, and displays. And Delta even went as far as investing in Cold Cathode Fluorescent Lamp (CCFL) production in the Tainan Science Based Industrial Park.
Five years later, the answer became "green products," including solar power, LEDs, and electric vehicles.
Now, without hesitation Delta executives would say that the answer is "industrial automation." And Simon Chang says that Delta's ambition is to become the FANUC (the world's largest robotics manufacturer) of the Chinese world.
Always wearing the same white dress shirt and dark blue suit, with his hair combed back, Cheng has hardly changed his outer appearance for the past forty years. Over the course of this time, his key motivation for several critical decisions has been "respect for human nature."
A dozen years ago, just as he was weighing whether or not to get out of the optical drive business, a friend's question shook him out of his slumber: "Are you a slave driver?"
Mulling over the question, he thought about the frenzied tempo his engineers had to keep to stay on top of the rapid changes in specifications, causing them to lose sleep and constantly work overtime. "This can be deadly; I can't be a slave driver," Cheng recalls.
He made up his mind then and there, "We need to find ways to get into businesses that aren't already overheated with intense competition – things others haven't thought of yet."
In the future, Delta Electronics will continue aggressively making inroads into the industrial technology realm occupied by industrial giants like ABB, Schneider, and Siemens, shaking up the industry scene these century-old names have dominated for so long.
"The 'Delta Out-side' we hear Delta rallying around right now is actually all about being an industrial brand," says NTU Professor Jiren Li, adding that "this is the most appropriate model for Taiwan."
Translated from the Chinese by David Toman