In the face of a difficult market in the first half of this year, many Taiwanese woodworking-equipment suppliers have adjusted their product strategies and taken other steps to improve their fortunes.

Among the many roadblocks confronted by Taiwanese manufacturers in the first half were a weak global economy, the SARS (severe acute respiratory syndrome) outbreak and the U.S.-led Iraq war. But as these worries recede, the local woodworking-machinery industry is forecast to enjoy a 12% gain in export value in 2003, to NT$25 billion (US$735 million at US$1:NT$34), according to the Taiwan Association of Machinery Industry (TAMI).

Bill Hung, chairman of the Taiwan Woodworking Machinery Association (TWMA), agrees with TAMI's estimate, concluding that Taiwan's export increases to Southeast Asia, mainland China, and Europe have more than offset declines in exports to the American market after the Iraq war and SARS outbreak.

The newly elected chairman has been helping association members increase sales in emerging markets since assuming his post at the association early this year. TAMI recently organized a delegation joined by 214 of its 280 manufacturer members to present their latest products at a woodworking-machinery trade show held in Vietnam.

Although many American furniture companies have begun contracting manufacturers in Southeast Asia to supply products, long-term business opportunities for Taiwanese woodworking-equipment manufacturers in Vietnam are not as sizable as in Eastern Europe, Latin America and India. Hung says his association will organize a delegation to participate in equipment shows in these emerging economies next year.

Hung estimates that exports of Taiwan-made woodworking-equipment will continue to improve next year. "The world economy is picking up along with the recovery of the electronics industry. A growing economy will stimulate consumption including spending on equipment," he states.

Taiwan is now the world's fourth-largest supplier of woodworking equipment, with revenue in the sector totaling US$670 million last year, according to TAMI. Germany is the world's No. 1 supplier, with revenue reaching US$2.7 billion last year, followed by Italy (US$1.7 billion), and America (US$1.5 billion).

Hung stresses that Taiwan-made machines are popular worldwide and competitive with German and Italian machines. "Our machines are easy to maintain and are only one-third the price of German and Italian models," he says.

While Taiwanese manufacturers still lag behind their German and Italian counterparts in design capability, they are much more nimble than their European peers in responding to market shifts, says Hung. They also excel in building tailor-made machines for small-volume orders.

Routing the Competition

Hung's company, Boarke Machine Co., Ltd., has diversified into the production of computerized-numerically-controlled (CNC) routers from the production of sanding machines. His company has introduced a sanding machine that reportedly is 15% to 20% faster than older types and can work on irregular surfaces with polishing tools moving along X and Y axes.

CNC routers, Hung notes, command higher margins than sanding machines due to their higher entry barrier and smaller market size. "Most important of all, the sanding-machine market is too crowded now," Hung points out.

In the CNC-router market, Hung's winning strategy has been to build popular models and keep sufficient inventory to shorten delivery times. He notes that existing suppliers usually build machines upon receiving orders, which results in long delivery times and higher production costs. "We expect the strategy to keep our costs 20% lower than our rivals," Hung estimates.

Boarke debuted the automatic routers in September this year and will begin shipping them next year. The company expects to ship 12 such machines in the first year, with volume rising 30% or more in each of the following years. CNC routers are expected to account for 15% of the company's sales next year.

Boarke has also had several achievements in the polishing equipment area. The company's 52GM machine comes with a gauge to precisely indicate the tension of the sanding belts, ensuring sanding accuracy. The 52GM also has a control system with two circuit loops, enabling it to continue working even when one of them burns out.

Hung's company has recently introduced polishing machines that can be used for the processing of electronic devices, shoes and kitchen-counter tops.

Around 90% of Boarke's machines are used by woodworking factories and the remaining 10% are sold to plants in other industries. Mainland China and Southeast Asia absorb over half of Boarke's ISO9002-qualified machines.

Established in 1988, Hung's company is Taiwan's largest supplier of wood-surface polishing machines, generating average annual revenue of NT$150 million (US$4.4 million) on sales of about 600 such machines a year.

Last year, Boarke's revenue rose 20% from 2001 to reach NT$200 million (US$5.7 million) due chiefly to a flood of orders from Taiwanese furniture manufacturers in mainland China. Hung estimates his company's revenue will grow 15% this year thanks to the introduction of new machines.

Mighty Miter Saws

For the publicly held Chang Type Industrial Co., Ltd., currently the world's largest supplier of 10-inch miter saws for the do-it-yourself (DIY) market, the major problem affecting its business is the slower-than-expected demand for its premium types of machines in the United States, the world's largest market for DIY tools.

In order to counter the weaker demand for its premium tools, the company is branching into workbench saws, which according to Erica Huang, assistant to the company's general manager, are more profitable than portable saws due to the more complicated techniques involved. Home Depot, Huang says, has placed exclusive orders with her company for the lucrative machines.

The company has also expanded its product lines to include entry-level, middle-range and high-performance machines. "We can flexibly adjust our product lines in relation to market shifts so that our total revenue will not fall," she explains.

Chang Type has long been contracted by world-leading brand-name suppliers including Ryobi, Black & Decker and Emerson to supply premium tools, which are priced at over US$100 each and are marketed through major retailers such as Sears, Home Depot and Lowe's. "But since early this year," Huang says, "they have begun ordering low-margin models that retail for as low as US$79."

Miter saws retailed at below US$100 have since increased to represent around 50% of the company's total miter-saw output, which is likely to hurt its projected gross margin of 20%. Its first-half gross margin posted at 15.03%. Miter saws represented 75% of the company's 2002 sales, which totaled NT$1.67 billion (US$49 million at US$1:NT$34). The company's other products include band saws and scroll saws.

Hwang notes although American consumers have paid more attention to home improvement since the 9/11 attacks, the weak U.S. economy has made them cautious about spending. In the first half, weaker spending on home improvement in the U.S. was compounded by an extended cold spell extending deep into the spring in North America and the SARS outbreak. "The cold spell kept people from going out to fix their homes and SARS hindered retailers from placing orders," she explains. Fortunately, the delayed orders have been coming in since early in the third quarter. Overall, the U.S. absorbs 99% of her company's exports.

Huang notes that almost all of the island's major suppliers of DIY-type woodworking machines have been asked to supply budget models. "Many of them have shifted such orders to mainland Chinese factories," she says. Chang Type builds all of its machines at three wholly owned factories in Taiwan. But the company, according to Huang, also plans to open facility in the mainland to build budget models.

Whatever types of DIY machines the company builds, Huang confesses that the company is aware that it cannot depend solely on saws for earnings as profits in this area have declined considerably.

Huang says that her company's reputation for making safe products has helped win over consumers. On each of the company's miter saws there is a transparent sliding cover to protect users from contact with the spinning blades. To help users cut precisely, the company has devised a laser-measurement scale on each saw since 1999, one of the company's major patented designs.

Huang says that her company's main competitive advantages are its patented techniques on motors, turning-speed control panel and die-cast aluminum machine bodies, its position as the No. 1 supplier of miter saws, and its strategic alliances with many big-name suppliers.

Back on Track

For the first time in 30 years, the Anderson Group, currently Taiwan's largest CNC woodworking routers, suffered a loss last year on revenue of NT$2.2 billion (US$64 million) due chiefly to weak global demand.

Still, company vice president Steve Shen sees a silver lining in the stagnant market as big machine makers in Europe and America turn to contract-supply sources to cut costs. "Luckily, we have been chosen by them because our quality has impressed them," he says.

Beginning next year, Anderson will ship machines on original equipment/design manufacturing (OEM/ODM) terms, marking a departure from its long focus on own-brand ANDI machines. Shen is quick to emphasize, however, that Anderson will not give up sales of own-brand machines. "The only difference is that our own-brand machines will not go to our OEM-based market," he notes.

Anderson has also introduced several self-designed core technologies to cut production costs, including CAD/CAM (computer-aided design/computer-aided manufacturing) software and its HSK63F embedded high-speed spindle. Powered by a 15-HP motor, the spindle has a maximum turning speed of 24,000 rounds per minute. According to Shen, the software is expected to save the company NT$20 million (US$590,000) on related costs each year, while the spindle is estimated to cut annual spending by NT$24 million (US$706,000) be eliminating the need to source 300 spindles outside. "Both items will contribute a combined NT$0.59 per share to our earnings a year," he reckons.

Anderson posted a profit of NT$11.3 million (US$330,000) in the first half this year, reversing its NT$24 million (US$700,000) loss in the same period of last year. "The second half is traditionally the peak season and our capacity has been completely booked until January next year," Shen notes. The company, he says, projects its 2003 revenue at NT$2.4 billion (US$70 million).

According to Shen, Anderson is now the largest Asian supplier of CNC routers for non-metal work-piece production. Behind this success is the company's strategy of focusing on development of core CNC techniques and developing new applications for its machines. "We always give 'woodworking' a loose definition so that it can encompass wider applications and help us generate more business opportunities," Shen stresses.

So far, the company has applied its CNC techniques to the production of printed-circuit boards, plastic parts for vehicles, airplane interior parts and wooden cases for household appliances.

Anderson rolled out Taiwan's first locally developed CNC router in 1988 and has so far advanced to five-axis models. According to Shen, key to the company's technical leadership in Taiwan is its tireless dedication to development new technology. "Since our 1972 establishment, we have been seeking to become a technologically self-sufficient company," he says.

In 1980, Anderson became a dealer for Homag, the top German manufacturer of woodworking machines, and also acquired technology from the German supplier. Today, it has R&D offices in Germany, the United States, mainland China and Taiwan. The company spends 6% of its revenue on R&D each year.

Anderson exports most of its plastic-parts machines to Europe, while the U.S. absorbs most of its airplane-parts machines. Most of its machines for processing furniture and wooden cases for household appliances go to mainland China, and Taiwan is its major market for PCB machines.

Going DIY

In face of reduced orders from mainland Chinese customers, most of whom are Taiwanese wooden-furniture manufacturers, Jely Machinery Industrial Co., Ltd. Began branching into the DIY machine market in America last year. The company originally focused on workshop machines, such as dovetail tenoners, saws and sanding machines.

Jely has depended on mainland China for a dominant portion of its revenue since the mainland has emerged as the major production base for Taiwanese furniture manufacturers. According to the company's president, Jely Chang, the competition in the mainland market for workshop machines has intensified since local mainland manufacturers have jumped into the segment and are undercutting their Taiwanese rivals.

Declining to comment how bad the loss of business to mainland rivals has been, the low-profile Chang says simply that mainland manufacturers will sooner or latter unseat their Taiwanese opponents as the major suppliers of workshop machines in the mainland.

Chang's worry is not groundless. The Industrial Economic & Knowledge Center (IEK) of the government-backed Industrial Technology Research Institute (ITRI) cautions that the mainland will soon rise as Taiwan's nearest rival in the world woodworking-machine market, in which Germany, Italy and Taiwan are now the top three suppliers.

According to IEK, there are around 50,000 furniture factories in the mainland with a combined output value of around RBM140 billion (US$16.8 billion at US$1:RMB8.3) a year. The center's studies show that the mainland will post an average GDP growth pace of 7% to 7.5% between 2000 and 2010, which in turn is likely to spur spending on furniture in the domestic market there.

Far from throwing in the towel, Chang's company has been rolling out new efficient machine to retain customers in the mainland. One such model is a double-end sawing machine, which comes with two saws in diameters of 10 inches and 12 inches. The saws move forward and backward along two rails, cutting woodworking pieces up to 20 inches wide and 22 to 96 inches long.

The double-end sawing machines are equipped with four saw spindles, each powered by a two-horsepower motor; and two shaper spindles, each powered by a three-horsepower motor. The saw spindles rotate at 3,000 to 3,600 rounds per minute and the shaper spindles turn at 7,200 rounds per minute. Sawing machines have accounted for over 50% of the company's output since its establishment 20 years ago.

Still, Chang admits that the mainland's equipment manufacturers have been able to build machines with functions similar to those made by his company and sell them at much lower prices.

Jely has begun shipping machines to Vietnam, where the government offers tax incentives to lure foreign investors including Taiwanese furniture manufacturers. Yet the Chinese mainland remains a more attractive destination for Taiwan's furniture manufacturers. Lack of a sufficient supply of wood materials is one of Vietnam's disadvantages, Chang emphasizes. "This factor is very decisive to furniture manufacturers in their investment decisions, and ours," he says.

Chang also feels that his business this year has cooled down compared with last year because of higher steel prices and the weak global economy. He notes that business has become more difficult to predict as production scales at Taiwanese furniture manufacturers in the mainland and Vietnam have changed too fast. "In the past, Taiwanese manufacturers have expanded too fast. But now they have sharply slowed down expansions. That is not good for equipment suppliers," Chang laments.

Chang's company has an annual output capacity of 200 machines of various types for manufacturers of solid-wood and man-made board furniture. These machines are exported mainly to Asian markets under the company's own brand name and are available in European and American markets under the brands of other companies.