Riding the Apple Wave
The unassuming quartz crystal is in fact the pulse of the digital products market. How did two brothers from a Taiwanese farming family break the Japanese monopoly to make TXC sixth in the world?
Riding the Apple WaveBy Riding the Apple Wave
From CommonWealth Magazine (vol. 367 )
Taoyuan County's Pingjhen City is not home to many thriving businesses. The construction of TXC Corp.'s new building, designed by architect Joshua Jih Pan, is the most eye-catching scene in its quiet little industrial park.
TXC Corp. is Taiwan's largest quartz crystal components supplier, and the sixth largest in the world. Quartz crystal components, the source of digital signals, are known as the pulse of the digital products market, propelling all personal computers, digital cameras and mobile phones.
If Intel and Texas Instruments provide the hearts of computers and mobile phones, quartz crystal components are their pulse, pumping blood (digital signals) throughout the body (product).
TXC Corp. earned revenues of NT$4.84 billion and profits of NT$830 million in 2006, a 41% and 73% respective increase on 2005, with a 26% gross margin ratio. A supplier of major local systems company Quanta Computer and mobile phone brand Compal, TXC Corp. was also recently spotlighted by Goldman Sachs as receiving orders for the Apple iPod and iPhone, and is joining forces with MediaTek to take on the China mobile phone market.
With digital overtaking analog in the field of electronics, quartz crystal component prices have gone up. For instance, the digitalization of auto electronics has increased the demand for quartz crystal components from 4 per car to over 40. For mobile phones, that figure has increased from 1-2 per phone to 4-5 per phone, and quartz crystal components are becoming ever smaller and more intricate. According to statistics from the Industrial Technology Research Institute's Industrial Economics & Knowledge Center, global demand for quartz crystal components has grown from US$2.05 billion in 2003 to US$4 billion last year.
The concentration of electronic industry businesses in Taiwan means the island accounts for 25% of global quartz crystal component industry output, over 60% of which is centered in Japan, with America, China, Europe, Korea and Taiwan making up the rest.
Taking the Lead with Quick Reactions
Using its close connections to local systems manufacturers, TXC Corp. is slowly taking orders originally going to Japan.
Major international manufacturers frequently specify that their quartz crystal components be made in Japan. Yet Taiwanese systems manufacturers soon discovered that Japanese quartz crystal component businesses were adapting poorly to the short lifespan of digital products. After a few delays, they suggested that their clients change their supplier, and that is when TXC Corp. took over.
One Goldman Sachs analyst observes that, especially since 2005 when new market demand for cell phones took off, Motorola came to find Japanese components expensive and expanding their production risky. Around this time, TXC won their first Motorola order, and since then have much more easily won orders from other name-brand manufacturers.
The Lin brothers, Chairman Paul Lin and President Peter Lin, who established TXC Corp. 24 years ago, are old acquaintances of many of Taiwan's electronics leaders, including Acer's Stan Shih, Inventec co-founder Sayling Wen and UMC honorary vice president John Hsuan. These are the same men who helped TXC Corp. to arrive where it is today.
Having left home at the age of 18, Peter Lin studied electronics and worked at the Tatung Co. maintenance center fixing televisions and radios, surrounded by electronic components. Eventually, he and his older brother Paul set up Lianghsing Electronics in Taipei's Guanghua Market, supplying local electronics factories with over 21,600 types of imported components.
Early industry leaders such as Stan Shih and Sayling Wen were on the front lines of technology R&D, and Peter Lin attributes the relationship between them and TXC Corp. to frequent late-night deliveries to their doors in the early years. MicroProfessor I – Acer's first branded computer – was distributed by the Lin brothers.
In the course of distributing electronics components, the Lin brothers found quartz crystal an expensive and difficult-to-acquire material with great market potential, and turned their sights on establishing a quartz crystal plant. During their 1993 expansion, John Hsuan put them in touch with Hon Hai CEO Terry Gou, who became a shareholder of TXC Corp.
Peter Lin believes that TXC Corp. is positively affected by Hon Hai's ambition to be number one internationally: “Terry Gou has great ambition. He is always saying that we need to be the best in our industry, and to be top three in the world.”
Pingjhen City can no longer hold TXC Corp.'s expanding production lines, but Peter Lin is loath to leave the “not too prosperous” location, as he puts it. The myriad talents required are difficult to reassemble, the new building is complete, and TXC Corp. has branched out beyond quartz crystal components for information and communications, and is now targeting the auto electronics market. This little digital pulse is ever on the lookout for new markets.
Translated from the Chinese by Ellen Wieman
Chinese Version: 台灣晶技 搭著Apple飛上天