Mining Gold in the Clouds
IT powerhouse Delta Electronics is chalking up gross profit margins in excess of 20 percent – a level many Taiwanese tech companies can scarcely dream of – and they're doing it by moving toward higher-value "green power systems integration" services.
Mining Gold in the CloudsBy Elaine Huang
From CommonWealth Magazine (vol. 476 )
In the sweltering heat of June, the president and vice presidents of National Taiwan University lined up in a row inside the university's administration building with the three top honchos of Delta Electronics Inc. – Chairman Bruce Cheng, CEO Yancey Hai and COO Mark Ko – their faces lit up by the incessant flashing of the photographers' cameras.
The ordinarily bashful and low-key Cheng smiled broadly as he engaged NTU President Lee Si-chen in a vigorous two-handed handshake.
Delta will soon provide NTU's School of Business with Taiwan's first academic cloud to set up the world's first business curriculum based on cloud computing.
This is of particular significance for Bruce Cheng, who at 70 continues to keep abreast of the latest scientific journals and regards research and development as more important than making money.
The beating heart of this academic cloud will be Delta's Cloud Data Center. Delta, the world's leading power supply unit provider, spent three years developing the power supply for the Cloud Data Center, which consumes 40 percent less energy than conventional Data Centers.
Integrating Manufacturing and Green Energy
"Delta is now moving toward the manufacture of more profitable technologies," says Huang Chung-hsing, assistant dean of NTU College of Management. Much of Taiwan's technology industry has taken a path of the "three to four percenter" (i.e. profit margins in that range), focusing on hardware manufacture and falling into a cycle of pursuing mass production amid declining profits. Delta boasts annual operating revenue in excess of NT$170 billion yet is able to maintain gross profit margins that exceed 20 percent, numbers Taiwan's Big Five electronics giants simply cannot hope to touch.
An observer of Delta for more than 20 years, Huang has watched as the company recently moved from the electronic parts and components it manufactured at its inception into areas like systems integration. It has taken its core power supply unit manufacturing businesses and expanded into power supply systems for electronic vehicles, energy-saving building construction and cloud data centers.
"It's a business model of ‘green energy integration' that can provide clients with high added-value services," according to Huang.
Taking a road less traveled from that of most Taiwanese tech companies was the doing of Bruce Cheng. He was keen to avoid the scenario of employees breaking their backs while the company failed to earn money and produced goods with little value.
An engineer for Air Asia early in his career, he has solidly imbued Delta with a "spirit of innovation."
He has always felt that if he could not create an R&D platform for engineers, his own workforce would eventually become bored with the lack of challenge.
It is this type of engineer-oriented corporate culture that has made the local firm a magnet of sorts, continually attracting top personnel from major international companies. President and COO Mark Ko, for example, is a former top executive with RCA Taiwan. Chief Technology Officer Liang Rong-chang was once one of the three top scientists at Polaroid. Ben Jai, a senior department head who came over to Delta last year to organize the company's cloud technology center, was once a driving force behind the development of Google's servers.
That spirit of innovation that utterly permeates the core engineering mentality has allowed Delta to expand into the more challenging field of "green integration" rather than fall into a rut amidst the profitability of its core manufacturing business.
A year ago Delta was the subject of much public praise over its handling of the systems integration project involving the solar power roof of the World Games Stadium built in Kaohsiung. Shortly thereafter, the company landed a contract for a project involving a well-known European fashion chain.
The rapidly expanding European fashion brand, which Delta has implored reporters not to reveal, sought Delta's help integrating the electrical, lighting and monitoring systems at 100 of the company's retail outlets. Satisfied with the result, the company is set to expand the project to 1,000 outlets.
"The solar power roof and the Cloud Data Center were both integration projects tailor-made for each particular client, and this is the road Delta seeks to travel," says Mark Ko, who is, like Bruce Cheng, more than a little camera shy and seldom grants interviews.
The Rise of the Integration-oriented Project Manager
But these sorts of projects are certainly a departure from the parts and components manufacturing of Delta's past.
"It's much more complicated, because you need to help the client formulate an overall approach that best suits that client's energy needs," says Huang Yi-ping, manager of Delta's Electrical Systems Integration division.
An electrical engineer by training, Huang is a former CTCI Corp. engineer. Upon seeing the determination of Delta to turn toward green energy systems integration, an area in which he possesses extensive expertise, Huang at the age of 50 decided to switch career tracks so as to accept new challenges.
The conventional engineer with head buried in R&D is ill-suited to carry out green energy integration projects.
"They need to be integration-oriented project managers," says Mark Ko, adding that with the rise of the green energy integration business model, there will be a great demand for such personnel in the future.
What Ko refers to as an "integration-oriented project manager" is a specific sort of "multifaceted" engineer.
First they must possess some knowledge of marketing so as to understand their market. And they can't be too nerdy, as they must also be possessed of good communication skills to enable them to get a firm grasp on client demands. They must have a background in basic R&D if they are to have an understanding of the unique properties of Delta's products and their effective application to the integration project at hand. Finally, they must possess the interdepartmental coordination skills that would allow them to effectively bring together the products, personnel and resources of various different departments.
When Huang Yi-ping and a group from corporate HQ joined their sales force in Europe for talks with the client, they found the smart control units commonly found in ordinary building automation projects would be overly expensive, pushing up construction costs without necessarily complying with client demands vis-à-vis energy savings and remote monitoring capabilities. The economic benefits weren't there.
Upon returning to Taiwan, Huang's team continued their back and forth with the client to eventually work out the integration of Delta's industrial automation products with the local European engineering systems.
Delta's smart building energy conservation project has ultimately enabled the 100 retail outlets in question to automatically sense and adjust temperature settings based on the movement and volume of people, thereby maintaining a constant ideal temperature. Lighting can be pre-set according to operating hours and even the energy-saving elevators have gotten smarter, with the ability to store the excess energy created by their up-and-down motion for use throughout the rest of the building, resulting in a reduction in overall energy usage.
Not only that, the system allows the fashion chain to effortlessly monitor the 100 outlets in question, automatically shutting down the power after normal operating hours to further boost energy efficiency.
The European client was very happy with the capability-to-price ratio of the project and virtually on the spot determined to expand the systems integration project to 1,000 retail outlets in total, engaging Huang and his team to carry it out.
New Standard in High Value Manufacturing
"Integration-oriented" engineers like Huang Yi-ping now account for around 20 percent of Delta's engineering workforce, and as that segment of the company's business has expanded, the supply of such talent has fallen short of demand.
Delta's shift from being strictly a manufacturing concern to the relatively higher-value green energy manufacturing business associated with systems integration services has pointed the way to a new path to profitability for Taiwan's technology manufacturers and kicked off a new wave of demand for a new breed of tech personnel.
"I know the shift to green power systems integration won't be easy," Mark Ko acknowledges, "but with the foundation we've already laid, we can get it done."
Translated fromt the Chinese by Brian Kennedy