Abstract

Focusing on Distribution and Added Value Functionality

The distinction between the global WAN and LAN industries is gradually becoming more blurred. On the application side, due to the rapid growth of broadband access, content being carried by computer networks is no longer limited to simple text, but has extended on to include VoIP, streaming media, and other multimedia formats. At the same time, Internet users no longer view Internet access devices as simply a means for getting online; they want their access device to play the role of an intermediary that provides value added services. LAN technologies such as Optical Ethernet now have transmission speeds measured in Gbps, and are starting to be integrated with metropolitan backbone networks. Such applications are a potential source of competition for the next generation WAN technologies such as VDSL and DOCSIS 2.0.

In response to these changes in demand and technology, in Taiwan more and more companies from different industries are starting to move into the WAN and LAN sectors. The range of IC solutions available is becoming steadily more comprehensive, and IC companies can now provide reference design and even back-end production line PCB layout in addition to ICs. Such services are lowering the barriers for new entrants to move into WAN systems manufacturing.

Taiwan's WAN manufacturers are keeping up with global trends by making the transition from analog modems to xDSL and cable modem broadband products. However, xDSL and cable modem are moving rapidly into the mature stage of the product lifecycle. Taiwanese manufacturers will need to add functionality to strengthen added value. For example, in the future more and more households will have more than one computer, which will require the integration of Internet access equipment and SOHO routers. In addition, the convenience that WLAN provides renders WLAN a strong candidate for integration with existing broadband products.

To secure a larger share of the global WAN CPE market, Taiwanese manufacturers will have to establish direct sales channels with operators in the major regional markets. This will allow them to improve the stability of shipment volume, and secure more control over the timetable for the development of new specifications. Most Taiwanese manufacturers have started to establish direct sales channels with operators and MSOs in major broadband markets such as Japan, Korea, China, and Germany. Direct sales channels will make it easier for WAN players to adjust production capacity and product development capability as rapidly as possible. Such links will also facilitate a more intimate understanding of local demand for production specifications and shipments.

Competition From Chinese WAN Players

At present, Taiwan accounts for 58% of total global xDSL shipment volume and 78% of total global cable modem shipment volume. Taiwanese manufacturers have already narrowed the gap with leading international vendors in terms of product development speed and mass production capability. In the future, the greatest potential for an increase in business opportunities lies with companies such as Europe's Thomson and Siemens, Japan's NEC and Korea's Samsung, all of which do not yet outsource WAN production to ODM/OEM manufacturers. A decision by these companies to outsource to Taiwanese manufacturers would be the main source of future growth for the Taiwanese xDSL industry.

Although some Taiwanese manufacturers have moved into broadband central office equipment, this market will be difficult for Taiwanese manufacturers to penetrate in the short term given a lack of experience in system deployment and an underdeveloped after-sales service support. One possible strategy that Taiwanese manufacturers could adopt would be to continue to expand their market share in the global CPE market. Larger market share will enable these makers to increase visibility, while also allowing them to keep their finger on the pulse of the future needs of operators and MSOs.

Taiwanese manufacturers will also need to meet competition from China. In particular, Chinese manufacturers are gradually starting to erode Taiwanese manufacturers' share of the analog modem market. In the Chinese domestic market, Chinese manufacturers have an absolute advantage. However, so far Chinese manufacturers have not tried to expand internationally; additionally, their relationships with leading international vendors are weaker, and in the production of broadband products they are only just getting off the ground. There is thus no immediate threat to the Taiwanese manufacturers in the broadband product ODM/OEM market.

Nevertheless, bearing in mind the huge size of the Chinese market and the competitive advantage that Chinese manufacturers enjoy in production costs, the gap between the Taiwanese and Chinese manufacturers will close rapidly, and competition from China is definitely a latent threat. Taiwanese manufacturers are following the strategy at which they have excelled in the past, keeping a close eye on the changes in leading vendor specifications and watching for opportunities to secure new contracts, while also working to strengthen their relationships with existing partners. Owing to the Chinese government's policy of encouraging the development of high-end communication and network technologies, some larger Chinese companies such as ZTE and Huawei have shifted the main focus of their product development to central office equipment, while outsourcing small scale production of CPE broadband products to Taiwanese manufacturers. This is providing new opportunities for the Taiwanese WAN industry in China, while also creating the possibility of collaboration between the Taiwanese and Chinese WAN industries.
 

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