Balancing Vision with Precision
Motion control specialist Hiwin Technologies is Taiwan's hottest manufacturer. Here's a look at how chairman Eric Y.T. Chuo has built a "Made in Taiwan" innovation and R&D legend.
Balancing Vision with PrecisionBy Hsiao-Wen Wang
It may be already dark outside, but the lights in Hiwin Technologies' factory in the Taichung Precision Machinery Park remain brightly lit.
Hiwin chairman Eric Y.T. Chuo paces quickly around the company's new headquarters.
Walking around the plant, one sees stickers declaring "EK" on every machine. The letters stand for "Eat the K's," a reference to Hiwin's Japanese rivals THK, NSK and IKO.
Standing to Chuo's side is the plant manager, who may only have a high school education but brims with confidence. He casually tells the story of how he met a manager from Hon Hai Precision Industry Co., the world's largest electronics manufacturing service provider, at a show in Germany, and the Hon Hai rep asked admiringly, "How it is possible to make so much on a steel bar?"
That seemingly unremarkable steel bar – in fact a ball screw – has helped Hiwin emerge as a manufacturing legend.
Simply put, ball screws translate rotary motion into linear motion. From Starbucks coffee machines, McDonald's french fry machines, and mechanical arms that perform minimally invasive operations, to the equipment used at contract chip maker TSMC and display panel manufacturers AU Optronics and Chimei Innolux – they all need ball screws for precise positioning and smooth movement.
If a ball screw costing tens of thousands of Taiwan dollars fails, machines worth tens if not hundreds of millions of Taiwan dollars, and even entire production lines, can grind to a standstill.
Surpassing Market Darling HTC
In business for 23 years, Hiwin is truly in its prime. Its revenues have risen by a factor of 10 over the past 10 years (See Table), and its earnings per share in 2011 hit a record NT$17. Net margin also set a record at 28.9 percent, nearly double the 14.8 percent posted by HTC Corp., long one of the most expensive stocks on Taiwan's bourse.
The company derives its incredible energy from its emphasis on R&D, a feature that has proved attractive in drawing high-caliber people from elsewhere. Successive waves of wealthy high-tech engineers from Taiwan's semiconductor industry have appeared at Hiwin's doorstep, ready to get their hands dirty.
Only when Chuo heads downstairs, his back slightly hunched, does one realize he's 70 years old. For the past 23 years, Chuo has lived in a company apartment next to the factory, cooking himself breakfast and washing his own underwear. He works every day from 9 a.m. to one or two in the morning, only getting together with his family on weekends. A reading fanatic, Chuo has planted a small library in his office, enabling him to grab a book to read or test a theory anytime.
Chuo has invested his entire life in the company's little ball screws. He racks his brain every night trying to squeeze a few more revolutions per minute from products that can already rotate at 6,000 rpms or pondering how to eliminate friction created by the 0.8 mm diameter bearing balls that run through the screw's grooves. And the screw's precision is always a prime consideration, allowing a tolerance of no more than 1/200th of the thickness of a hair.
"We have an incurable sense of mission. I want to prove that Taiwan is capable of being successful in this industry," Chuo says, growing more passionate as he speaks.
The Unlikely Spy
It may be hard to believe that research and development became the battlefield on which Chuo, whose background is in banking, has fought for much of the second half of his life.
By the time Hiwin was in its fifth year, with annual revenues still under NT$100 million, Chuo was acutely aware that the industry's technology and equipment were firmly secured in the hands of Japan's "three Ks" – THK, NSK, and IKO. He decided to buy a German ball screw manufacturer named Holzer that had gone bankrupt, in search of a way to break through the Japanese gauntlet and build his own production machines.
"At the beginning, the product didn't harden well enough, and the machines' precision was below par. Japanese companies in the industry made fun of us," says one Hiwin manager privately.
But eight years after acquiring Holzer, Hiwin's ball screws and linear guides were as precise as those produced in Japan while costing only half as much. Hiwin also offered favorable lead times.
Where the Japanese needed two years to deliver a machine, Hiwin could get it out in three months.
"Making my own equipment was cheaper. We had the same assets, but mine was cheaper. Depreciation was low, so gross margins were high, and profits were also high," Chuo says proudly.
"Because Hiwin produces its own equipment, its Chinese competitors can't catch up," says Wang Chi-ching, a technology hardware analyst at Daiwa Securities.
Looking to further vertically integrate his operation, Chuo acquired century-old English thread grinder manufacturer Matrix Machine Tool (Coventry) Ltd. in 2010, helping Hiwin quickly expand its capacity.
"Matrix could not compete with Japan. Now we use the Matrix brand to sell to China, Japan, India and Russia, and sales are strong to all of those places. Using its brand, with the parts coming from Taiwan, costs are down 50 percent and profit has come," Chuo says as he grabs a thick version of The Unlikely Spy in its original English from a shelf behind him. The book, an autobiography by Paul Henderson, a former managing director of Matrix Churchill (the predecessor of Matrix Machine Tool), tells the story of Iraqi interests' purchase of a majority stake in his company in 1987 to support its secret program to build nuclear weapons.
Chuo has also sought acquisitions to enhance Hiwin's automation capabilities. At a time when the company's two core products – its ball screws and linear guides – have emerged as cash cows, he has had the luxury of planning for the company's next 10 years and investing in automation and robotics.
Three years ago, Chuo acquired Israeli motion control specialist Mega-Fabs Motion Systems Ltd. to help fill a gap in Hiwin's electro-mechanical capabilities, helping it move aggressively into the medical, energy and robotic markets.
"I cooperate with many universities, such as National Chung Cheng University, Tsing Hua University and National Taiwan University, to be equipped for the completely changing face of the market in the next 10 years. I have to plan. You have to see into the future," says Chuo, who concerns himself even more with the long-term than the short-term.
10% of Employees in R&D
To stay ahead of the technology curve, the medium-sized Hiwin invests 4-5 percent of its annual revenues in R&D. At subsidiary Hiwin Mikrosystem Corp., which specializes in linear motion components and systems, spending on R&D has been as high as 18 percent of total revenues, even higher than at technology standard-bearer TSMC.
Of Hiwin's nearly 4,000 employees, roughly 400 are involved in R&D, and research centers have been set up in Russia (Moscow), Israel (Haifa) and Germany (Offenburg).
Section chief Chen Yan-yu, who has worked for Hiwin for nine years, is one of the company's top R&D people.
The 33-year-old already has nearly 50 patents, earning him NT$700,000 in patent bonuses from the company. He was recently transferred from ball screw R&D to special project development, with a mission to provide customized automation services to individual customers. Though the potential profit stream from the niche remains distant, he contends: "When we do R&D, we already know who the customers are and what they want." Running around with no direction is the bane of R&D, he says.
Every day, Chen inspects his Gantt chart – a bar chart illustrating a project schedule – and the "check points" he and his six subordinates have set for themselves, to see if his team is keeping pace and advancing the technologies they are developing.
"We're the ones who have set the milestones, so it's a mission we have to achieve," Chen says.
Chen epitomizes the company's vision and its discipline in managing R&D projects. Chuo has been in control of the company's R&D activities for more than 20 years, and he often tells academic researchers collaborating with Hiwin, "if a company's people are all geniuses, it will go bankrupt quickly. If they are all fools, it will go bankrupt gradually."
"Geniuses all have high opinions of themselves and can't work together, leading to disintegration and the rapid depletion of funds. A company of fools loses a little money every day until it goes under. In every company, you have to have some geniuses, but you also need management talent for the organization to be balanced," Chuo insists.
Under the smile of a quarter moon peeking through the clouds, Chuo walks quickly back to his new headquarters. Waiting for him there is a new tomorrow, full of new technologies and new markets for Chuo and Hiwin to tackle.
Translated from the Chinese by Luke Sabatier
Eric Y.T. Chuo
Position: Chairman, Hiwin Technologies Corp., Hiwin Mikrosystem Corp.
President, Taiwan Machine Tool and Accessory Builders' Association
Chairman, Robotics Association of Taiwan
Chairman, Hefeng Precision Technologies
Chairman, Hiwin Technologies
Chief Secretary, Chiao Tung Bank
MBA, University of San Francisco
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