- Two megapixel (2MP) or higher digital still cameras (DSC) are expected to account for over 50% of Taiwanese DSC manufacturing by the end of 2002, according to Market Intelligence Center (MIC), a Taiwan-based IT research and consultancy firm. In conjunction with stronger demand for higher-end products, the steady decrease of CCD (Charge-Coupled Device) and CMOS (Complementary Metal Oxide Silicon) sensor prices will help drive this change in product mix.

As evidence of this trend, MIC's report sites a sizable jump in average selling price (ASP) resulting from a higher share of 2MP products, from US$83.38 in the first quarter of 2001, to US$109.83 in the first quarter of 2002. Production value rapidly outpaced production volume during this period; while production value jumped 46.9% to US$219 million, production volume rose 11.6%, to two million units.

MIC Industry Analyst Yvonne Chen noted that this higher concentration presents certain factors that could threaten the Taiwanese DSC industry. "Such high concentration can be a mixed blessing because it creates market dependency. Most DSCs produced in Taiwan are sold in the US because they are more suited to consumer preferences that in Japan or Western Europe. As 67% of DSCs are shipped to the US, any unexpected change in the US market will pose a great challenge to the industry," said Chen.

However, Taiwanese manufacturers have been able to counter this high degree of dependence as they ramp up marketing efforts in Japan. Share of shipments to Japan rose from 3.4% in the first quarter, to 5.7% in the second quarter.

"Taiwanese makers have had difficulties breaking into the high-end market because Japanese makers controlled the patents for lenses and CCD sensors. By building an effective marketing strategy in Japan, where consumers are very demanding with respect to image quality, Taiwanese DSC makers have been able to surmount these obstacles," Chen explained.

In the second half of 2002, the Taiwanese DSC industry should enjoy strong growth. Production volume and production value are expected to undergo year-on-year growth of 89.9% and 93.4% respectively. While both leading brand-name vendors and Taiwanese players are fairly optimistic about the second half, Chen warned that this optimism could backfire.

"If it turns out that these makers and vendors are overly optimistic, big international vendors can simply ask for delivery to be delayed. Taiwanese DSC makers and component suppliers will then have to suffer the additional costs of increased inventories," said Chen.

Chen added that because digital cameras require six months from design to production, if 2002 projections do not meet expectations, production will not be ramped up again until 2002. In a market that typically only experiences strong DSC sales during the first six months of release, consumers may be less willing to accept products designed the previous year.