Asian IT Manufacturers Turn to Auto Electronics

The rapidly expanding auto-electronics industry was long controlled by big companies in Europe, the United States, and Japan, but today the industry is providing opportunities for major high-tech companies in Asia as well, according to a recent report by CLSA Asia-Pacific Markets, a market-research firm.



The report notes that some Asian technology companies with strong competitiveness in the personal computer (PC) and consumer-electronics industries are turning their eyes to auto electronics products such as global positioning system (GPS) navigation systems, air-bag sensor modules, and other electronic systems and parts. And, according to CLSA, these newcomers have certain advantages that bode well for their success in these new businesses.

The report predicts that Taiwan's Hon Hai Precision Co., the world's largest maker of barebone PCs, connectors, and game consoles, and Singapore's Venture Corp., a leading contract manufacturer, will benefit from the auto-electronics market, despite the fact that related products account for only a small part of their overall operations so far.

The robust proliferation of electronic systems and devices in modern cars offers lucrative business opportunities, according to the report, including in-car multimedia and entertainment systems, navigation products, new safety products such as distance sensors and electronic air bags, and environmentally friendly subsystems that provide lower fuel consumption and reduce emissions.

The CLSA believes that the average value of electronic products in a passenger car will reach US$1,705 in 2007, up more than 65% from 2003. Over the same period, worldwide auto sales are expected to rise from 40.2 million to 45 million units.

Another market-research firm, Gartner Inc., reports that auto-related semiconductor sales are expected to rise by 7.4% this year to US$16.9 billion. At the same time, many internationally known auto-parts makers are boosting their outsourcing of auto-electronics products. Gartner analyst Mike Williams says that Delphi and Visteon, for example, are expected to expand their outsourcing ratios in response to the growing pressure to cut costs.

Government Incentives

The analysts who compiled the CLSA report noted that numerous high-tech firms have a strong interest in developing the auto-electronics business and that Taiwan's government has also announced plans to promote this new line into an industry with an annual production value of over US$30 billion. To achieve this goal, the Ministry of Economic Affairs (MOEA) has been mapping out incentives such as tax breaks and preferential loans.

Attention in Taiwan has turned to auto electronics as profits from the PC and cell-phone industries have eroded. The island's top information technology (IT) and electronic groups are also eyeing the huge potential in mainland China, which has one of the world's fastest-growing auto markets. For example, Rock Hsu, chairman of Taiwan's big Compal Electronics Inc., recently led a Taiwanese delegation of 40 representatives from high-tech companies to visit Chinese officials and manufacturers in a search for business opportunities there.

But tapping into the auto-electronics line is not so easy, CLSA explained, because supply chains and cooperative ties are already firmly established, and quality and specification requirements, especially for products related to safety, are very stringent.

Charelene Wu, vice president of JF Asset Management's Taiwan operation, cautions that while Taiwanese electronics manufacturers have an opportunity to reap profits from the auto-electronics industry, they will have to be patient. The profits will not come immediately.

At a recent meeting of Hon Hai shareholders, chairman Terry Gou conceded that getting into the automotive line would be challenging. Most of the firm's revenue currently comes from PCs and related parts and accessories, but the company is determined to add a fourth "C"—representing cars--to its 3C business (computers, communications, and consumer electronics). To that end Hon Hai purchased the Antec Electric System Co., a supplier of OE (original equipment) wire harnesses to Ford Motor of the U.S.

Singapore's Venture has also been busy expanding into auto-electronics products, including safety devices and air-conditioning parts. Analyst Atul Goyal says in the CLSA report that auto-related businesses currently account for less than 5% of Venture's revenue, but that their contribution to overall profits is higher than 5% because such products offer relatively high margins.

Another of Taiwan's top IT manufacturers, Mitac, has entered the automotive field with GPS navigation devices which have become best sellers in the global market. The company shipped more than 550,000 of the devices in the first quarter of this year alone, some under its own brand and the rest on an OEM/ODM (original equipment/design manufacturer) basis.