Defending the Throne
Advantech Launches Counter Attack from Europe
Ennoconn Corporation, a member of the Hon Hai/ Foxconn Technology Group, is steadily closing in on Taiwanese industrial computer manufacturer Advantech Co. Ltd., threatening to replace it as the global No. 1. How does Advantech plan to win this battle?
Advantech Launches Counter Attack from EuropeBy Elaine Huang
From CommonWealth Magazine (vol. 643 )
In late January, Advantech held the grand opening of its European Service Center in Eindhoven, a city in the south of the Netherlands, about an hour's drive from the capital of Amsterdam. Despite the harsh winter weather, more than 300 Advantech executives and sales partners came from across Europe to attend the event.
“This year, in order to strengthen Advantech's leading position in the European IoT market, we are going to promote and expand our presence in local markets across many application domains,” said Chaney Ho, Advantech co-founder, executive director of board, and acting general manager of Advantech Europe, as he confidently addressed the high-caliber crowd.
Ho, sporting a shock of white hair, noted that the completion of the center marks “Advantech’s first step towards becoming Europe’s most comprehensive IoT solutions provider.”
Gazing across the hundreds of attendants, Advantech President of Embedded IoT Miller Chang exclaimed, “I have not seen such a large assembly in a decade.”
Earlier this year, Advantech Co-founder and Chairman K.C. Liu declared that the three years from 2018 will be years of “exponential growth” for the industrial IoT industry, saying that, as the business ecosystem thrives and develops, the individual players will position themselves accordingly. He predicted at the time that the winners would be apparent in three to five years after that.
Liu’s remarks were sparked by a sense of urgency.
As Ennoconn Poaches Staff, the Battle Takes Shape
Coming from behind, the much younger Ennoconn has been steadily closing in on veteran industry leader Advantech. Bolstered by its large, rich parent, the Hon Hai/Foxconn Group, Ennoconn rapidly grew to its current size through mergers and acquisitions. At the same time, Ennoconn has been poaching a significant amount of Advantech’s core talent.
In mid-August 2017, Advantech launched its generational transition. Ho stepped down as president of R&D to take the post of executive director, while the company’s three vice presidents were appointed as co-presidents to jointly steer the company.
In a surprise move about a month later, about ten middle management staff in Advantech’s Applied Computing Group (ACG), which mainly provides design and manufacturing services, defected en masse to Ennoconn.
On March 6 of this year, Ennoconn announced that former Advantech ACG Vice President Kenny (Chin Tai) Deng had been appointed president and board director, and incumbent President and CEO Steve Chu had been promoted to chairman and CEO.
Advantech chairman and CEO Steve Chu (Image: Chien-Tong Wang)
In the past, Advantech and Ennoconn went their separate ways, not encroaching on each other’s territory even though they both make industrial computers. While Advantech mainly built its brand and expanded its sales channels, Ennoconn remained in the contract manufacturing business.
But after going public in 2014, Ennoconn went on an M&A spree. With the acquisition of a major stake in Austrian software firm S&T AG in 2016, Ennoconn indirectly obtained a controlling stake in embedded computing technology firm Kontron AG, which is headquartered in Augsburg in southern Germany. That’s when Ennoconn started to become a direct threat to Advantech.
“Kontron and Advantech were competitors in the first place,” notes an industrial computer manufacturer, adding that Ennoconn had deliberately bought up Advantech’s arch rival.
Lee Hsin-yi, ITC and data computing analyst with the Topology Research Institute, points out that Ennoconn is changing its production model from small-volume/large-variety to medium-volume/medium-variety in order to satisfy the contract manufacturing needs of customers who demand customization alongside fast mass production. The entire industry has changed as a result.
“The small volume, large variety and high profit margin structure in the industrial computer industry is gradually being destroyed by Ennoconn. This is also leading to a rivalry between the two strong competitors,” Lee says.
A glance at the two rivals’ financial statements for FY2017 highlights their differences. Ennoconn posted a revenue of NT$35.4 billion and 144 percent revenue growth, whereas Advantech’s revenue came in at NT$44.3 billion with a growth rate of only six percent. After Ennoconn completes its full acquisition of S&T in 2018, the company looks to boost revenue to above NT$50 billion, which would most likely allow it to topple Advantech from its position as the world’s largest industrial computer maker in terms of revenue.
Yet Advantech is not going to simply retreat and leave the field for Ennoconn that easily. Instead, it is mobilizing for a counter attack from Kontron’s stronghold of Europe. Advantech’s financial statements indicate strongly that a European recovery is in the making.
Multiplying Growth by Conquering the European Market
Over the past two years, the European market share of Advantech's revenue rose from 15 percent to 18 percent. Average annual revenue growth reached 24 percent, making Europe Advantech’s hottest market. However, with expanding demand, the existing facilities hit production bottlenecks.
“The space inside the plant could not meet usage early on; this was finally solved with the expansion this year,” says Jeff Shih, vice president of Advantech Global Services located in Eindhoven. Advantech’s growth in Europe has doubled over the past five years.
Advantech runs a customization assembly line at its facilities in Eindhoven, which happens to also be the birthplace of Dutch technology giant Philips. Here parts and half-finished products from Kunshan near Shanghai and Taipei are assembled to customer specifications before they are delivered to dealers across Europe. The pioneering facilities have been fitted with the company's latest smart technology. Also serving as a demo site for customers, the building features Advantech’s service IoT and Industry 4.0 applications.
On the factory floor, intelligent enhancements to Advantech’s self-developed manufacturing execution system streamline operations on the assembly line, from pre-configuration, assembly and integration to quality control.
All information is fed to the Industry 4.0 situation room, where a large display allows monitoring of the situation on the factory floor in real-time. This can help speed up improvement cycles and instantly adjust production volumes to meet constantly changing needs.
“When a customer places a customized order, we can deliver the goods to the customer within five days. It won’t be easy for our competitors to outdo us,” says Shih, who single-handedly created this smart factory system, with confidence.
Given that Advantech can provide more flexible assembly and after-sales services than its European rivals, the large gathering of sales partners and executives in Eindhoven was also meant as a demonstration of strength from afar toward challenger Ennoconn.
Branding Key in IoT Era
Moreover, as Advantech looks to conquer local markets, it is repositioning itself as a key partner for dealers and integrated system vendors.
Germany, for instance, Europe’s largest market, is where Advantech is currently focused. Germany is leading in the automation and machinery industries. “If you want to conquer the European market, you need to conquer Germany,” says Chang.
Again, Germany is Kontron’s stronghold and will become a hotly contested battleground when Advantech and Ennoconn fight it out in the future.
For instance, Aaronn Electronic GmbH, a small provider of integrated systems solutions in Puchheim, near the southern German technology hub Munich, originally was an exclusive Kontron dealer. But in recent years they have also begun to sell Advantech products, which are proving increasingly popular.
Aaronn Electronic GmbH Sales and Marketing Manager Florian Haidn, a tall man with gold-rimmed glasses, points out that changing customer needs necessitated the change. “Customers do not want only one product. And for customization projects, we need a technological cooperation partner,” notes Haidn, getting right to the point.
Therefore, Aaronn, which had exclusively collaborated with Kontron, was forced to turn to Advantech for its customization services.
“In the very beginning, when our customers heard Advantech, they would say, hmm, a company whose name starts with A,” notes Haidn as he recalls that only a few years ago the brand Advantech did not ring a bell at all, forcing him to spend a lot of time persuading customers to try out Advantech products.
Subsequently, Haidn discovered that, as a latecomer to the European market, Advantech was more flexible than established industry veteran Kontron as it was willing to work with system integrators on customization projects.
Moreover, the Aaronn office is just three kilometers away from Advantech’s Munich plant. Often, all it took was a single phone call to arrange an ad-hoc face-to-face meeting for further discussions. “I would make a phone call, and the Advantech engineers would be able to provide technical support. We also often went together to visit customers,“ says Haidn.
Meanwhile, five years into the sales partnership, Advantech products account for half of Aaronn’s revenue. In terms of revenue share, Advantech has become the system integrator’s most important partner ahead of Kontron. On the other hand, system integrators like Aaronn with vertical and horizontal market expertise are an important backup for Advantech as it tackles the competitive German market on the frontline.
Relying on 10 locations across Europe and some 400 employees, Advantech chose to build its own brand and technological services to prevail amid stiff competition in the IoT era.
“There's nothing wrong with Advantech’s approach of transforming by building its brand in IoT; the only problem is that IoT growth remains below expectations. However, many new business models keep popping up, so it is too early to say who is going to win and who is going to lose,” remarks a Taiwanese institutional investor in private.
“In the past, we had a hard time fighting an urban guerilla war. In order to fight the brand building battle, we must use an army,” says Chang.
This is not just a duel between two tech companies and their business models. As we march into the era of the Internet of Things, this is a new point in time that will show whether Taiwanese brands are able to shine again on the technological world stage.
Translated from the Chinese article by Susanne Ganz