(Chinese Version)

Recently, Yuan Diwen, former manager of MTK’s mobile phone division, has left MTK to join Spreadtrum Communications. To be honest, it’s not surprising at all. High-tech industries in Taiwan have been fighting hard to get pass the bottleneck long before but yet little progress has been made, which eventually results in the loss of talents.

The development of Taiwan’s high-tech industries

Back in the 1980s, Taiwan was regarded as one of the Four Asian Tigers by the world alongside with Hong Kong, South Korea, and Singapore, among which it ranked the first by adopting the Original Equipment Manufacturer (OEM) mode. In 1992, Taiwan’s GDP hit US$200 billion and ranked the 20th in the world by gross domestic product (GDP), with its GDP per capita exceeding US$10,000, ranking the 25th in the world. Its foreign trade volume was estimated to reach a total of US$150 billion and ranked the 14th. As for its foreign reserves, Taiwan was the world’s third largest holder, with a total volume of US$90 billion. Taiwan back then was indeed a bright star.

OEM mode stimulated the development of the semiconductor manufacturing industry in Taiwan. In 1987, the leading company in the industry, TSMC (Taiwan Semiconductor Manufacturing Company), was founded. Since then, Taiwan has been adopting OEM mode while developing its semiconductor manufacturing industry and eventually TSMC became the world’s largest semiconductor foundry. Another leading giant known as UMC (United Microelectronics Corporation) also adopted OEM mode in 1995. By 2004, TSMC has attained 46% of the global market share in semiconductor manufacturing sector while UMC took up 23%, which made Taiwan the leader in this particular sector.

OEM mode also nurtured the development of IT industry in Taiwan. Since the 1990s, Taiwan started to focus on establishing the specialization of production, which later provided the adequate environment for pure-play foundries such as Foxconn, Quanta, and HTC to grow. These companies were then famous for their high efficiency in production and being incredibly professional. They offered OEM service to industry leaders such as HP, NOKIA, MOTOTOLA, DELL, SONY and CISCO, and their services ranged from PC and mobile phone to network equipment sector. Major brands in the US and Europe at that time were hoping to use cheap labor force in Asia to reduce the production cost and increase profits, from which Taiwan’s IT industry greatly benefited.

During this process, major domestic brands such as Acer, HTC and Asus emerged. In the PC sector, Acer and Asus have both made their way into the top five laptop manufacturers in the global market. According to statistics provided by NPD display search, Asus ranked the third biggest player in the laptop sector globally, while Acer ranked the 5th. In the smart phone sector, HTC used to rank 5th in the global market and was the dominant brand in the US market in terms of market share. Unfortunately, Apple soon sued HTC for violating its intellectual rights, and eventually pushed HTC out of the US market.

Taiwan lost its edge when competing with South Korea in the high-tech industry

Taiwan used to be South Korea’s matching rival in the high-tech sector, and even had greater advantages in some aspects. But at present, MTK and TSMC are the only two brands that Taiwan can bring forward.

Supported by the Two Trillion & Twin Star (T3S) plan that’s brought forward in 2002, the LCD panel industry in Taiwan started to boom. During its peak time, it even surpassed South Korea in market share. However, it started to decline gradually. In 2008, Taiwan was deeply affected by the global financial crisis and great damages were made during that period. The South Korean electronics giant, Samsung, took the chance and made continuous investments in the LCD panel sector and eventually became the champion in market share, leaving brands from Taiwan far behind. In 2014, LG and Samsung ranked the first and second respectively in the global LCD panel sector in market share. And this year, Chinese mainland is most likely to exceed Taiwan and take the second place in this sector.

It is the same for the RAM industry. The DRAM industry in Taiwan was as advanced as that of South Korea. But after a decade of competition, Taiwan appears to be in disadvantage while its strong rival keeps getting stronger. In the fourth quarter of 2014, Samsung and Hynix all together grasped 70% of the global market share, while Taiwan-based Nanya Technology and Winbond only took up 3.1% and 1.3% of the market share respectively.

The IT industry in Taiwan is apparently also going down. Laptop OEM industry in Taiwan used to rule the world with a market share of 90%. But as Lenovo, which designed and manufactured its own computers, rose from the ground in the mainland, manufacturers in Taiwan started to decline under pressure. According to the company development plan released by Lenovo in 2012, the company’s self-manufactured computers should account for 70% of the company’s total products in 2014, and at present, Lenovo aims to increase its smart phone production. It’s no surprise to find that manufacturers in Taiwan would crumble under such pressure. The Taiwan-based company, Hon Hai, is still the dominating foundry in the global market, but confronted with such fierce competition, the company is currently looking for a way out to achieve transformation by, for example, entering the e-commerce sector.

One of the main reasons for high-tech industry in Taiwan to be surpassed by that of South Korea is that Taiwan refuses to pass on advance technology to the mainland. For instance, in the early stage of LCD panel production when BOE and CSOT in the Chinese mainland just started to produce LCD panels that adopted 8th generation technology and other more advance technologies, South Korea companies such as Samsung and LG immediately cooperated with the mainland’s government to build LCD panel factories.

But Taiwan’s manufacturing factories in the mainland only had the capacity for 7.5th generation line. Currently, Samsung is building the world’s largest semiconductor foundry in Xi’an and plans to adopt the 10nm technology while UMC’s foundry for 12-inch semiconductor in Xiamen can only adopt the 40nm technology. The worst part is that the mainland-based company, such as SMIC, has already been experimenting on using 28nm technology since the end of last year.

The only two high-tech giants that Taiwan can bring forward are TSMC and MediaTek. TSMC is still the biggest semiconductor foundry in the world taking up 40% of the global market share while MediaTek is the second largest semiconductor foundry in Taiwan. In 2013, Samsung’s revenue in semiconductor manufacturing sector was only US$9 million less than MediaTek, showing a great tendency to surpass it in no time. It's said that in 2014 Samsung has already surpassed MediaTek and become the world’s second largest semiconductor foundry.

From the aspect of technology, Samsung has achieved mass production with its 14nm FinFET technology, but as for TSMC’s 16nm FinFET, it’s lagging far behind. Even though TSMC announced that it would soon put 16nm FinFET into mass production later this year, Samsung is no doubt many steps ahead of TSMC in technology.

MediaTek is also the second largest chip maker in the smart phone sector. It tried to enter the high-end market but its efforts didn’t seem to pay off since it was under great pressure and competition from mainland companies such as Hisilicon and overseas heavyweight like Samsung. Hisilicon is a subsidiary of mainland giant, Huawei, with a focus on chip making. With the support on mobile communication technology from Huawei, Hisilicon is in competition with TSMC, and it’s a matching force for the leading giant, Qualcomm. Its mobile chip technology is also a match for TSMC.

Samsung’s new product Exynos7420 performs even better than Qualcomm’s 810, tested by performance testing app, geekbench. In July last year, thanks to the advanced semiconductor technology that it possesses, Samsung as a leading smart phone maker was able to show great potential in the chip market.

The current situation of Taiwan results in the loss of professional talents.

The bottleneck that Taiwan has been facing for years directly resulted in the situation that the average salary in Taiwan hasn’t changed much for almost 15 years. In 2014, the average salary in Taiwan was approximately NT$47,243, and the average salary of college graduates was around NT$22,000, even less than that of 1999. In last year’s World Competitiveness Yearbook released by IMD, Taiwan moved down from former year’s 31st to 27th, which was the worst ranking Taiwan has got in recent decade.

Last year, Chinese mainland cashed in US$ 20 billion and founded integrated circuit development fund to support chip business in the mainland. It’s said that Spreadtrum Communications has already received a fund around 30 billion RMB. With the support of large investments, chip makers in the mainland have started to expand and hunt for talents, some of which even set up offices in Taiwan to poach existing talents.

To attract professional talents in Taiwan, companies in the mainland would often offer high salary to their potential candidates. For instance, the Huawei-led company, Hisilicon, is offering a high salary that’s 3 to 5 times higher than that of Taiwan. It’s even willing to compensate for breach of contract for its potential candidates. Moreover, the company has established Taiwan branch offices that allow employees in Taiwan to work in Taiwan without having to commute to the mainland. Yuan Diwen was then poached to Spreadtrum Communications in this peculiar period. There are also rumors around that Spreadtrum Communications has poached a couple hundred of IC designers from Morningstar as well.

While the Chinese mainland marching from pure “made-in-China model” towards the concept of “designed and made in China”, Taiwan’s high-tech industries are going straight down. In recent years, the mainland has been showing great support for the high-tech industries and last year, it even increased its already large investment scale in this particular sector. It’s known to all that tech industries in China have fostered groups of millionaires and this tendency will continue to surge, attracting professional talents all around the world, and Taiwan is no exception. It’s fair to say that Taiwan is indeed in a big trouble now.

(The article is published and edited with authorization from the author @Bo Ming 007, please note source and hyperlink when reproduce.)

Translated by Garret Lee(Senior Translator at ECHO), working for TMTpost.