3 Jan 2009

Global positioning systems are getting more common all the time. Taiwanese firms are world leaders in portable GPS devices and they're ready to follow the technology's expansion into cell phones.

BY SEAN SCANLAN, Special to AmCham

These days, you don't have any excuse for getting lost. Global positioning systems (GPS) for personal use are now very simple to use – and they sell for as little as US$99. Five years ago such devices cost upwards of US$1,000. The dramatic drop in prices seen since then is attributable to lower component prices and to resourceful Taiwanese original equipment manufacturers (OEMs) who have found creative ways to cut costs. Taiwan is the world leader in portable GPS navigation devices – units that can be affixed to a car's dashboard or windshield and are typically powered by a rechargeable battery that can be connected to the vehicle's cigarette lighter. Many such units are so small that they easily fit in a glove compartment or even a jacket pocket.

In 2007, Taiwanese companies sold US$2.7 billion worth of GPS devices; if related products and components are added, the number rises to US$3.1 billion. Those companies' shipment last year of 21.6 million units of personal GPS devices accounted for 60% of the global market. In 2008 – according to Ho Hsin-yu, industry analyst at the Market Intelligence Center (MIC) of the Institute for Information Industry – local output is expected to grow to 32 million units. The increase, Ho says, will be spurred by lower prices.

The figures Ho cites refer to units produced by Taiwan-registered companies, whether the devices are actually manufactured in Taiwan or in China. They numbers do not, however, reflect the full extent of Taiwan's role in the industry because they do not include output from Garmin Electronics. This firm, an industry leader that pioneered early GPS technology, was co-founded by a Taiwan native, Kao Min. Garmin doesn't count in Ho's figures because the company is registered in the United States – though it continues to manufacture in Taiwan.

The specs

The low accuracy was due to signal-scrambling by the U.S. Department of Defense, which first developed GPS systems 30 years ago. When civilians were first permitted access to GPS in 1983, the use of unscrambled signals was restricted to military staff. In May 2000, however, President Bill Clinton lifted the ban on unscrambled signals, opening the door for a rush of civilian GPS products. These included in-dash automobile units and portable navigation devices with accuracy to within 10 meters.

Basic GPS technology has changed little since it was initially developed. It continues to depend on a constellation of 24 satellites that transmit information to GPS receivers. GPS units are basically radio receivers, in that they have an antenna tuned to the satellites' frequency. In addition, each GPS unit contains two processors – a special GPS processor as well as a CPU to perform simple computations.

Typically, a GPS receiver obtains information from three to four satellites. This allows it to perform rudimentary mapping. That is, the key to GPS technology is a time code emitted by each satellite. Each satellite is tuned to the same clock, and the GPS receiver analyzes the time it takes to receive a signal from a particular satellite in relation to two other satellites. These time differentials, along with some simple arithmetic, allow one to identify one's precise location on the globe.

In 2012, the accuracy of GPS systems is set to improve to within just a few centimeters, as the European Union plans to launch its Galileo navigation system. The project couldn't come at a better time, as many of the GPS satellites that were launched by the United States are nearing the end of their useful lives. Still, funding issues are plaguing the EU's ambitious venture. Some doubt if it will ever get off the ground.

Taiwan's role

Taiwan's specialized role in the GPS industry did not develop overnight, and its development may have had more to do with providence than careful planning or corporate strategy.

Portable GPS devices have historically been overlooked by Japanese and South Korean electronics makers, who have concentrated on in-dash GPS systems that sell for a minimum of US$2,000 and deliver margins approaching 40%. (Many such units feature entertainment functions such as DVD players and MP3 audio.) Market penetration for in-dash GPS units is quite high in Japan and South Korea, approaching 70%. Ho says this rate has been achieved through government policies intended to promote anintelligent auto industry. In Taiwan, by contrast, market penetration for in-dash systems is less than 10%, which is attributable to the cheaper cost of portable units and to a lack of government policies to promote the sector.

In-dash units cost more because automakers typically work with a longer technology road map than do consumer electronic firms. A typical automaker may plan a production road map and source components five years in advance. For this reason, according to John Lysjford, brand manager at local GPS maker Mio Technology, the auto industry has fewer opportunities to take advantage of falling component prices (and firms run the risk of their in-dash GPS units becoming obsolete). As a result, in-dash systems are now 20 times the price of portable devices that perform the same functions (and can easily be moved from one car to another). The affordability of portable GPS units has proved to be a boon for Taiwanese producers.

Many of these producers had some experience with GPS in the early 1990s when they produced the first generation of personal digital assistants (PDAs). In those days, Taiwan was an OEM center for PDAs, and local firms worked on behalf of companies like HP and Compaq. At that time, PDAs provided limited functionality, and the tasks they performed eventually became redundant as more advanced cell phones were introduced. However,one of the major selling points for PDAs was their ability to become GPS receivers. Unfortunately, transforming a PDA into an item with GPS functions was not cheap. One needed to purchase both an antenna and a special GPS processor. These items could amount to US$500, and they were also quite cumbersome to use for anyone other than electronics enthusiasts. Furthermore, syncing the items together was not an easy “out of the box” process. Therefore, while GPS functionality briefly extended some PDA makers' profitability, it was only a matter of time before all three components – PDA, GPS, and antenna – would be incorporated into a small, easy-to-use, and cost-competitive item.

State of the industry

Taiwan's portable GPS makers find themselves in an enviable situation in the industry because they offer tremendous cost savings compared with in-dash GPS systems. Moreover, market penetration for GPS devices is low in many countries. According to a 2007 Harris Interactive technology research study, one in six U.S. adults, or 17%, currently uses a GPS location device or service. Additionally, GPS units provide a host of useful functions beyond GPS itself, such as detecting speed cameras and giving real-time traffic updates.

But some believe the industry faces a hidden challenge: what Lysford describes as a phobia of high-tech consumer electronics. The GPS industry in its early days depended for its success on a base of electronics enthusiasts. Today, it is encountering some resistance among those who are not technologically inclined or, in Lysfjord's phrase, the “free phone people” – people who are so indiscriminate about their choice of cell phones that they opt to receive a free cell phone when they sign up with a cell phone network.

Mio, a subsidiary of the Taiwanese OEM/ODM computer maker Mitac, knows first hand the difficulty of taking electronics products mainstream. After all, the company began as a self-branded PDA producer that encountered market resistance before devoting its resources to a single function: easy-to-use personal navigation devices. Mio's breakthrough came when the company decided to incorporate an antenna, a GPS processor, and a PDA into a single unit. In addition, the company enjoyed new opportunities as component prices fell for LCD panels, GPS chipsets, CPUs, and flash memory.

Perhaps the biggest savings came in the area of CPUs. Many portable GPS units were powered by the same Intel processors that were powering computers and other portable devices. A switch to no-name processors, many of them made in Taiwan, provided huge cost savings. Also, the leadership position in GPS chipsets that was once held by the foreign brand SIRF has gradually been taken over by the Taiwanese firm Mediatek. Currently, Mediatek offers a GPS chipset that is cheaper than SIRF's and just a few steps behind technologically. (The quality of a GPS chip can be assessed by the amount of time it requires to process a signal. SIRF chips, at the top of the spectrum, need just 5 seconds, while the company's competitors average around 30 seconds.)

With Taiwanese companies having made huge strides in lowering the cost of portable GPS units, a terrific opportunity has arisen in the form of online sales. In fact, some of the most active e-commerce sites are dedicated to consumer electronics. As it turns out, such sites have made great places for upstart, cost-competitive companies like Mio to launch their products.

Internet retailing would ultimately be the chief reason that Mio rocketed to a top-four position in the portable GPS market. At one point, Mio's share of the U.S. market for portable GPS units was less than 1%. Determined to do better, Mio embarked on an aggressive price-cutting program in 2006, which it launched on the day following Thanksgiving. The company cut prices to about US$300 via internet channels. Over the following week, Mio grabbed about 37% of the sales in the sector. Since then, the company has kept pace with its competitors' relentless price cutting. Mio produces the majority of its units in China and benefits from sourcing alliances with Mitac.

Mio is looking ahead to a time when its biggest competitors will not come from the GPS market itself but rather from cell phones. GPS technology has now become so affordable and lightweight that major cell phone manufacturers such as Nokia, Samsung, and Motorola plan to roll out new models with GPS functions. Shipments of such phones are projected to dwarf current shipments of portable GPS units. The technology is already available and, according to many, the demand already exists. “The one problem with GPS units on cell phones,” Lysjford says, “is that one needs to add yet another antenna to an already crowded phone. This means that every corner of the phone will have an antenna – one for Bluetooth, one for WiFi, a GSM signal, and now GPS.” He adds that cell phones don't even necessarily require GPS chipsets. Some models, including the iPhone,already rely on cell phone transmitters rather than satellites to determine location. While such technology is much less accurate than GPS, it is cheaper and it doesn't require an additional antenna.

Mio is already planning to enter the cell phone market. It will soon produce models that can perform GPS functions as well as other functions associated with smart phones and PDAs. Considering that the company was such an early entrant into the PDA market, this new challenge shouldn't be such a stretch.

Among the most exciting developments in the GPS industry today is the new affordability of pairing GPS receivers with signal transmission capability, as through the GSM chips that are used in cell phones. Units with this capability allow hunters, for example, to track the location of their dogs at all times through GPS collars – which Garmin sells for as little as US$199. Police departments around Taiwan are also making use of devices with transmitting capabilities, affixing hidden GPS units to vehicles that are at high risk of being targeted by thieves. The idea is to catch the perpetrators when such a vehicle is heisted. This means that GPS technology today not only lets you know where you are – but also where your possessions have gone!