Taiwan High-Tech Conglomerates Eye Auto Electronics

United Microelectronics Corp. (UMC), Taiwan's (and the world's) second-largest wafer foundry service, recently acquired a majority stake in Bcom Electronics Inc., a supplier of original equipment (OE) products to local automakers. UMC's vice chairman, John Hsuan, is expected to become Bcom's new chairman.

UMC has also purchased US$10 million worth of euro-convertible bonds issued by the local Action Electronics Co., an OE supplier of in-car multimedia systems.

The wafer-maker's controlling interest in Bcom will help it gain access to automakers on Bcom's customer list, including several in Taiwan as well as GM China, KIA, and Hyundai. Even more importantly, the move will ease UMC's entry into the auto electronics line by helping it to acquire the required certification processes.



Industry sources say that more and more major conglomerates are targeting the lucrative auto electronics business and gaining entry into it by acquiring stakes in existing auto electronics companies. For example, Hon Hai, Taiwan's largest manufacturing group and the world's foremost maker of barebone PCs, connectors, and game consoles, has acquired 100% of the local Antec Electric System Co., an OE supplier of wire harness and in-car entertainment system products to local automakers. This acquisition, reported a Hon Hai spokesman, is the first step in the group's move into the 6C (computers, communications, consumer electronics, channel, car, and content) businesses.

With 55 million automobiles sold around the world every year, and with those vehicles equipped with more and more electronic devices, the attraction of the auto electronics business is obvious.

According to Chen Jian-yuan, president of Power Digital Communications Co. (PDC), a supplier of in-car computers to Volkswagen and other carmakers, the auto industry is undergoing a major shift toward digitization and fuel transfer—that is, being powered by fuel other than gasoline. That change, Chen stresses, is providing new opportunities for auto-parts makers in Taiwan.

Grasping Opportunities

Despite their relatively late development, manufacturers in Taiwan's auto industry are expected to grasp many of these opportunities, thanks to the island's solid foundation in information-technology (IT), electronics, and semiconductors as well as its strong R&D and innovation capabilities.

One of the things that struck Chen when he visited VW headquarters in Germany was that of the company's 10,000 engineers, only about 600 had expertise in electronics-related fields. He was delighted to learn that while the total cost of electronic parts in a modern automobile has outstripped the cost of mechanical parts, such a major company as VW has so few R&D people devoted to electronics. That means, he explains, that "the big auto makers will not alone control the ever-expanding auto-electronic segment."

With their globally recognized technical capability in the fields of IT, broadband, and wireless communications, Chen says, Taiwanese auto electronics manufacturers are expected to be strongly competitive in terms of product development, system integration, and cost control.

A senior source in the domestic IT industry points out that Taiwan's environment for the application of electronic products has expanded from office and home into the mobile arena, and that this will bring vast business opportunities to the island's auto electronics manufacturers.

For companies in traditional industries, even some high-tech ones, entry into the auto electronics market may not be easy. The first challenge they will face, explains Ji Chao-yin, a research manager at the Industrial Economics & Knowledge Center (IEK) under the Industrial Technology Research Institute, is overcoming a very different industrial structure.

First, Ji explains, companies entering the line will face an oligopoly--the market is controlled by just a few large international automakers--instead of the open-structure environment (even though it may be monopolized by Microsoft or Intel) they are familiar with.

Patience Needed

Another challenge is that the requirements for auto electronics products are very different from those for consumer IT and other electronic products. Auto electronics have to be able to withstand greater temperature variations, more shocks, and much higher standards of safety and reliability. Most big automakers, too, are strongly conservative in their choice of parts suppliers because of safety and brand-image concerns. A new product developed by an auto-parts maker often takes two years or more to negotiate the process of certification (by automakers) and commercialization; for an ordinary IT or electronic product, only around three months are needed.

Local auto electronics manufacturers are well positioned to overcome these challenges, the source adds, because of their flexibility and their ability to seek out niches in certain fields, especially for products that require IT and wireless communications technologies. In the past three years, for example, the island's production of global positioning system (GPS) navigation systems has grown at an annual clip of 60%.

The booming development of the auto industry in mainland China will also give a boost to Taiwan's auto electronics line, thanks to the close cooperative ties that bind the auto industries on the two sides of the Taiwan Strait.

Raymond Wu, president of the Tong Yang Group, the world's largest maker of aftermarket (AM) plastic body parts, points out that newcomers to the auto electronics line will have to be patient as they go through the drawn-out certification process required by the automakers. The auto companies all have mature, well-established supply chains, he observes, that newcomers cannot easily penetrate. To get into the auto-parts business, he adds, requires intensive and long-term investment, the accumulation of experience and know-how, the building of quality and credibility, and the development of mutual trust between suppliers and their customers.

In addition, Wu notes, each automaker has its own platforms and systems, which is very unlike the commonality and standardization of the IT and electronics lines. Further, the mass-production mode that most IT and electronics manufacturers are familiar with is not suitable for the auto-parts business, because the standardization of parts would stick the producers in fierce price-cutting competition.

High-tech Companies in Auto-electronics
Company	Product	Notes
Hon Hai	Auto Parts	Acquired 100% stake in Antec (auto wire-harness maker).
Delta Electronics	Auto Transformers	Also targets production of power supply-related products for autos.
Lite-On Technology	In-auto Multimedia	Joint development with affiliated Lite-On IT and Dyna Image.
MiTAC International	Fender, Engine Hoods	Produced by affiliated MiTAC Precision Technology, a mold/die developer.
UMC	In-auto Multimedia	Acquired majority stake in Bcom.
Action	In-auto LCD Monitors	Currently Taiwn's No. 1 such maker in the line.
Waffer Technology	Engine Hoods	Plans to concentrate on production of auto dashboards, sear frames and engine hoods. Revenue from auto-parts expected to outstrip notebook PCs and cell phones in 2008.
E-Lead Electronic	In-auto Multimedia, Information, and Telecom Systems	Aims to develop both OEM and own-brand (Sharpria) sales.
Wistron NeWeb	GPS Receivers	Targets orders from U.S. automakers.

Source: The companies.