The Taiwanese thin client industry's production volume is expected to grow at a compound annual growth rate (CAGR) of 49% between 2002 and 2006, accounting for 60% of the world's thin client production volume at 6.6 million units. A wider understanding of thin client's benefits and the trend towards Internet-based applications, will contribute to thin client growth.

"It is expected that once business users recognize the strengths of this relatively nascent technology, most corporations will include thin clients on their short-list of options when purchasing IT solutions," said Joe C. H. Chang, Industry Analyst with Market Intelligence Center (MIC). "Additionally, anticipation that the Internet will serve as the platform for future business IT applications has motivated a number of vendors to promote web services; thin clients would match the needs of this new computing framework. These factors should fuel rapid growth in the Taiwanese thin client industry.

"However, in the near future the development of markets in emerging countries by Taiwanese manufacturers will be the greatest factor responsible for this industry's growth," Chang added. With Western European and US markets saturated in PC-related products, emerging countries offer the greatest growth potential. Thin client vendors are aggressively moving to develop these new markets, making them the focal points of intense competition. By the end of 2003, MIC expects the Taiwanese thin client industry's production volume to have grown 80.9% from 2002, comprising 57% of global thin client production volume.

The first half of 2002 saw a 30% and 11% year-on-year growth in production volume and production value, respectively.  Growth was driven by the recovery of the global economy relative to the first half of 2001, when production volume and value were exceptionally low. "In reality, the growth in production volume and value for the first half of 2002 was only a resumption of the normal state of affairs," Chang pointed out. "In addition, shifting strategic alliances by major international vendors this year resulted in lost OEM/ODM orders, which slightly hindered growth."

Though total production value increased in the first half of 2002 to US$103 million, growth was slowed by several factors. Falling prices, along with a rising percentage of value-line model production, negatively affected total production value. Additionally, a trend towards outsourcing thin client software development has lowered entry barriers and freed Taiwanese manufacturers to concentrate solely on hardware production. The resultant rise in ODM/OEM production has caused a subsequent decrease in production value. "In order to combat these shrinking profit margins, Taiwanese thin client manufacturers have been forced to develop value-added functions for thin clients. While these efforts have helped maintain profit levels, they have not helped Taiwanese makers in significantly widening their profit margins," said Chang.    

According to MIC, the percentage of Taiwanese thin client production in China increased dramatically from the first half of 2001 to the first half of 2002. This shift to China is due to two factors: value-line and mature product lines requiring less R&D are being shifted to China for production, and thin client products targeting the Chinese market are also being produced in China to benefit from lower tariffs and costs. As the Chinese market grows and as more thin client product lines mature, percentage of Taiwanese thin client production in China is expected to increase. "Taiwanese manufacturers, benefiting from geographic proximity and a common language, should be able to develop the Chinese market in the future.  However, the development of this market will require extensive resources," Chang said.

Commenting on the global thin client industry in the first half of 2002, Chang indicated that the formation of strategic alliances, in addition to mergers, between companies is commonplace in the still-developing global thin client industry. "The pooling of resources between companies should provide an impetus for the industry's growth and, on the whole, will be beneficial. Taiwanese makers' flexibility, cost advantages, and maturing R&D capabilities should enable them to remain highly competitive in the global industry." 

For a comprehensive analysis, please see MIC's report "The Taiwanese Thin Client Industry in 1H 2002 and Beyond."