April 1, 2002

IT industrialists in Taiwan are become increasing wary of heir mainland counterparts becoming future competitiors rather than cooperation partners, and are anxiously looking forward to this year's CeBIT Asia trade show in Shanghai to see if their suspicions will be confirmed, according to source in Taipei.

Leading information technology groups in China are aggressively enhancing their development, service and manufacturing capabilities to decrease their dependence on contract suppliers in Taiwan, industry sources say.

The sources said that IT giants like Legend, Hai-Er and others in the mainland are building up their R&D, service, manufacturing, and sales capacities rather than just focusing on marketing as in the past. They predicted that major Taiwan OEM suppliers to IT groups in the mainland would gradually lose their advantages over the next few years. The trend would turn the now complimentary relationship between the two IT industries on the two sides of the Taiwan Strait into one of competition.
The sources warned that once they had the ability to develop and manufacture notebook PCs, they would sharply cut their orders to contract suppliers in Taiwan.
However, one Notebook manufacturer in Taiwan, a supplier to the Leged group, remarked that OEM firms in Taiwan would lose al opportunities to tap the huge mainland market if they refuse to help mainland companies to learn the ropes to the businesses. Many Japanese and South Korean makers are lining up to provide know-how to China instead.

In related news of Taiwan-owned offshore plants in China, with more relaxed Taiwan government policies on manufacturing IT products in China, production of Taiwan manufacturers on the mainland is expected to account for 50% of Taiwan's notebook shipments in 2002. That means, if Taiwan will maintain it's 55% market share as in 2001, that would amount to about eight million notebooks manufactured under Taiwan brands and OEM labels on the mainland. Global notebook shipments are projected to reach about 28-29 million pieces this year.

Earlier this year, China production was only expected to represent about 20% of Taiwan's notebook shipment for the year. But according to sources, Dell Computer is pushing its contract manufacturers, namely Quanta, Compal and Wistron, to transfer production of Dell notebooks completely across the strait in the future, if production and shipment operations in China continue to run smoothly.

Quanta is reported to make two thirds of its production for Dell in China this year, while Compal is currently making up to 150,000 units per month for Dell, with a total of around 1.5 million this year out of the company's Kunshan plant in Jiangsu Province. Sony is reported to have demanded Asustek and Quantao to produce one million units in China in 2002, while NEC also gave First International Computer similarly huge orders for their China facilities. Other top players, such as Compaq, Toshiba and HP, have plans to increase orders to Taiwan manufacturer's plants in China as well, according to economic news sources in Taipei.