Recently, rumors have been spreading in the market that Taiwan panel makers AU Optronics (AUO) and Innolux may merge into one company to combat competition in the market. Market observers said that such a move is likely considering the rise of China's panel industry coupled with increasing competition from Japan- and Korea-based panel makers.Sources at both companies over the last year have admitted there are increasing challenges due to China's flat panel industry growth, but have yet to specify that such growth is expected to hinder the development of Taiwan's panel industry in the future. While both companies have suffered losses in recent years, the sources said they are making advancements in niche markets with value-added products and are working more closely with supply chains to produce low-cost solutions as a means to further compete with China.Market observers, however, still believe the road ahead will be a problem for Taiwan's panel industry. The observers believe Taiwan is caught in the middle between not having enough low-cost solutions like China panel makers and not enough technology advancements in the high-end segment like Korea- and Japan-based panel makers. More so, governments in Korea and China are increasing support either through funding, which is helping panel makers in the two places expand production capacity and improve technology. China's government may even increase panel tariffs, which could pose even more challenges for Taiwan makers.If a merger were to occur between AUO and Innolux, it would have to be extremely tactic, with the aim of allowing the two companies to regain a competitive edge in the market rather than simply cutting down costs as a means to increase profits. If the two companies merge that means the same personnel and facilities would be part of their business, so then what makes that special in the market? This question needs to be thought of more in depth and as of now there are no reports stating the details of the merger since it is mostly speculation.Another aspect that needs to be considered is the incentives Taiwanese get for working with local panel makers. The sources have stated over and over again they are losing their best talent to China panel makers due to higher salaries, which they believe has given China an upper hand in developing new technology. If what the sources are saying is true, then the companies need to consider the incentives given to employees in order to keep them in Taiwan or improve efforts to bring in more.Taiwan's government is concerned about the impact of Taiwan's panel industry declining, as there are more than 200,000 workers associated with panel supply chains in Taiwan. What is surprising though is that the government has been quiet both in terms of how much it supports a merger and whether it would provide support for the industry financially. The local government should be more vocal on its position towards the panel industry as well as highly consider extending funding for possible technology improvements.Taiwan's panel industry is at a major crossroads and decisions made over the next year may highly affect the overall development of the industry in the years to come.

With Full HD (1,920 by 1,080) having become the mainstream specification of high-end smartphones in 2013, industry players are speculating over the possibility of the resolution climbing even higher to above the 2,000-pixel level in 2014. However, Digitimes Research believes such a chance is rather slim as production of high-resolution panels using LTPS and IGZO technologies still faces low yield rates and insufficient capacities.AU Optronics (AUO) started mass producing its 6-inch WQHD (2,560 by 1,440) panels with a pixel density of 490ppi earlier in 2014 and is supplying them to China-based smartphone player BBK. China-based smartphone vendor Meizu has recently announced its next-generation MX4 smartphone will adopt a 5.5-inch 2,560 by 1,536 543ppi screen. Sharp has also signed a contract with China-based smartphone vendor Xiaomi to supply its IGZO panels to the vendor. Although Sharp did not reveal any detail on the size or resolution of the panels involved in the contract, the chance is rather high that the panels will be above 2K resolution, judging from Sharp's definition for its IGZO panels.At Mobile World Congress (MWC) 2014, several first-tier smartphone vendors which had been originally rumored to be releasing 2K-resolution smartphones, such as Sony, Samsung, and LG, instead only showcased flagship models with Full HD displays. Since their displays were larger than their predecessors', the pixel densities were therefore lower. This shows that first-tier brand vendors are more conservative than expected about 2K-resolution smartphones.They have cocerns over panel supplies. To produce panels with a pixel density above 400ppi, the makers will need to adopt high-end technologies such as LTPS TFT, but so far only limited capacities are available for mass production using the technology.Although LG Display (LGD) and Japan Display (JDI) both established 6G production lines for LTPS in 2013, Digitimes Research believes these new capacities are unlikely to be operating in full in the short term as they are still at the initial stage of mass production and adjustments over process parameters are still needed.As for production of 500ppi-level panels, low yield rates during the initial stage will undermine supply. For first-tier smartphone vendors, who aim at massive shipments, panel supplies are the biggest issue needed to be resolved before the 2K resolution may become the mainstream.Therefore, smartphone vendors that dare to take up the 2K challenge are mostly from China where most of its demand is for CNY1,000-level mid-range/entry-level smartphones. High-end models with 2K reslution are developed only for the niche market or meant to enhance the vendors' brand recognition. Big volumes of shipments are not their concern.Although first-tier smartphone vendors are expected to start releasing 2K-resolution models in the second half of 2014 after LGD and JDI see improved operations at their 6G lines, vendors will continue to promote their Full HD smartphones side by side their 2K models, which are unlikely to become the mainstream of the high-end segment in the near term.

US-based GT Advanced Technologies (GTAT) is setting up a factory in Arizona for exclusive supply of sapphire to Apple, with the factory to be able to meet only 9.0-16.6% of demand for sapphire used in screen covers of a new-generation iPhone in 2014, according to Digitimes Research.The estimation is based on GTAT's forecast sales of US$188-348 million from sapphire material (not including sapphire crystal growing equipment and technology). Typical production cost for a 4-inch sapphire wafer is US$30, Digitimes Research indicated.Assuming that the new-generation iPhone will have a 5-inch screen, then the forecast sapphire revenues are translated into output of 6.27-11.6 million 5-inch sapphire-made screen covers. As Digitimes Research estimates that Apple will ship 70 million units of the new-generation iPhone in 2014, the output of sapphire screen covers frm GTAT will account for 9.0-16.6% of the iPhone shipments.

Wearable devices' functions have extended from the traditional area of information management to health management. This trend was highlighted by many smart health-monitoring bracelets showcased at the Consumer Electronics Show (CES) 2014. Google announced in January 2014 that its Google X laboratory will start developing smart contact lens that is able to constantly monitoring a person's blood sugar levels. The smart contact lens relies on a technological concept similar to radio frequency identification (RFID) and the firm has already created a prototype of the lens.The smart contact lens could be a perfect match for Google Glass, which can act as a wireless signal transceiver of the contact lens. Digitimes Research believes the smart contact lens is more than just another addition to the health management market. It could help extend the value of Google Glass.

Brand vendors have started showing interests in large-size tablets since early 2014. In addition to Apple's rumored 12.85-inch tablet, Samsung Electronics has already launched a 12.2-inch Android-based enterprise tablet, while Asustek Computer is planning to release a 13.3-inch dual-OS tablet.However, most of the large-size tablet projects face difficulties because of lack of support from related platform developers and ecosystems. Apple has also been said to shelved its large-size tablet project. Meanwhile, Google has decided to push an 8.9-inch Nexus tablet for 2014, showing that the Internet giant is starting to shift its focus to larger-size applications.Samsung flooded the market with several tablets of different sizes and specifications in January and is pushing its 12.2-inch tablet with a new user interface and multi-tasking ability, features that are designed for the enterprise market.But Samsung tablet has a weaker price/performance ratio compared to notebooks of the similar price range. Worse still, most of Android's enterprise applications are inferior to those on the PC platform. The Samsung tablet's new user interface also deviates much from the usual Andriod experience, to the dismay of Google. Therefore, Digitimes Research expects Samsung's new 12.2-inch tablet to only achieve shipments of around one million units in 2014.The Asustek-Intel cooperation on large-size dual-OS tablets was originally expected to bring the Taiwan-based vendor advantages in terms of product differentiation and boost other PC brand vendors' willingness to develop Android on x86 tablets. However, because Google is unwilling to see Microsoft benefit from its ecosystem, Asustek's TD300 tablet shipments and second-generation T100 development have both been delayed.The 8.9-inch Nexus is Google's first tablet project for 2014. With a screen big enough to compete in the large-size tablet segment, and with low cost and mobility, Digitimes Research expects the Nexus tablet to help prompt other brand vendors to turn to the large-size tablet segment, which only currently accounts for 30% in overall tablet shipments.

As smartphone popularity rises, demand for handheld games consoles has been dropping, especially for Sony's PS Vita. With an the upgraded PS Vita Slim set for release later in 2014, Sony is trying to earn back its momentum with a thinner and lighter industrial design. However, with the entry of smartphone gaming peripherals, handheld games consoles are expected to face a greater challenge in the future.Gaming peripherals for smartphones can be separated into two major categories: protective case type which directly attach to smartphones, and controller type, which are an independent controller that can be connected to smartphones. The former type has advantages in mobility, while the later is pushed for its usage experience. Logitech's PowerShell Controller is an example of a protective case type peripheral, while Samsung's Wireless GamePad is an example of a controller type.With game designers aggressively moving their latest games to mobile platforms, Digitimes Research believes handheld games consoles will eventually be replaced by smartphones and the trend will also open up new business opportunities for gaming peripheral players.

As demand for smartphones and tablets is gradually approaching saturation with related shipment growths slowing down, vendors have been aggressively seeking new growth drivers. Wearable devices are identified as one of the main growth drivers. Among them, smart watches, bracelets and glasses look the most promising.The South Korea government, seeing strong potentials in the wearable device market, has already come up with a series of strategies for the sector in the run up to 2020. It aims at having the country's wearable device shipments account for 40% of the global volume by 2020.The South Korea government is encouraging more firms to join the sector, looking to increase the number of its players by 100 by 2020 with wearable devices to account for 50% of the country's total IT production by 2020. The number of wearable device patent applications in South Korea has also been increasing each year.Digitimes Research identifies battery life and industrial design as presenting some of the biggest R&D challenges for countries or firms that wish to enter the wearable device market. Battery life affects the optimization of hardware intergation, which in turn affects the richness of app contents. Industrial design, on the other hand, is crucial in terms of consumers' willingness to wear the devices.The development of the wearable device sector is not only about the devices themselves, but also about the upstream supply chain as well as the downstream telecom carriers, apps designers and hardware retailers. For South Korea, its strengths coming from its panel and battery sectors are expected to boost their competitiveness in the wearable device market.

The security solutions market is an increasingly important market as the IT industry develops and security concerns strengthen. In Taiwan, security solutions providers such as EverFocus Electronics have watched the market develop for nearly 20 years and have witnessed not only how demand has developed, but also how companies compete amid increased competition.To understand how the security solutions industry is developing in Taiwan, particularly amid competition from China, Digitimes sat down with EverFocus product marketing manager, Tony Lin, to learn how the company is reacting to such developments and what kind of strategies are helping the company maintain a competitive edge.Q: How is the security solutions market developing and what does this mean to EverFocus?A: The security market is already quite mature and has a history of at least 30-50 years. The industry has seen the time of CCTV, then tape to hard disk, appliance to computer, and later computer back to appliance back in the early 2000s to become as the standard market DVR. In the last five years IT surveillance has grown particularly strong, with cameras, networks and recorders at the forefront. Simply put, this structure will always be the same regardless if there is cloud service because the same process applies. Really the biggest new thing to this setup is the use of mobile devices such as smartphone and tablets for more viewing options, but overall the structure is the same.What is changing though is the competition in the market. As of now Taiwan makers face challenges from China in terms of production capabilities in addition to low-cost solutions. It's already pretty clear that Taiwan IT surveillance makers have no way to further compete in this regard. So what direction is EverFocus going in? Customized services. Right now there are very different demands from customers for IT surveillance used in a variety of segments, so catering to customer demand is crucial. EverFocus focuses on having fast responses to customize, assembly or integrate solutions for its customers. It's not simply bringing another one of our products to the tablet for a customer; rather, react to the specific needs of each customer by making customized solutions. We are system integrators for system integrators in a manner of speaking.The IT industry has influenced not only the surveillance industry but also all industries around the world. As the security industry shifts and integrates more and more with IT, traditional surveillance systems cannot satisfy consumers' needs as before. We have to transform from analog to IP, and act as a service-orientated solution provider.Q: What is EverFocus' advantage over its competitors?A: We think our system levels have an advantage over our competitors, so taking on such a business model for EverFocus works well and also satisfies market demand. Of course, we have new and cutting-edge technology, but there needs to be more than that for a company like EverFocus, otherwise if we are just focused on a low-cost and low-profit business model, it would be very difficult to sustain. System integrations and solutions are important for Taiwan makers whereas China makers' solutions currently are product portfolios and product lineups. EverFocus also has 18 years experience in the industry and maintains close relations with its customers.Q: Why are security solutions important for companies?A: The way certain companies or organizations access security information is increasingly complex and customized. The methods by which, say, a camera captures video and transfers it back to a given database is essentially the same in the industry but the way that information is accessed is different. This has created increased demand for services such as POS integration, which can vary differently from customer to customer, so having a team that can react to such demand and offer companies comprehensive solutions to meet growing concerns is crux.Also, security solutions provide convenience for companies. Information is the most valuable asset to any company in the future, and should be protected and stored completely to ensure confidentiality, integrity and availability. EverFocus products can help companies protect important assets from various threats and make managing and securing confidential data no longer a problem.Q: Is there any risk in making solutions, such as extending services to mobile applications?A: There is risk, especially with information security. It depends on the customer's demand whether they want something that is powerful or something with limited usage. If you are creating an application for a mobile device that only requires a login and password, then there is going to be more risk. But we write high-security programs for our customers so information security for EverFocus is not really an issue.Q: What challenges do companies like EverFocus face?A: Selling cycles or response cycles are increasingly quicker, which combined with increased customized demand brings no shortage of challenges, so being efficient is crucial. So how does your business team become more efficient? A good way of doing that is through improving the culture and business process, which EverFocus has focused on over the last few years.Our platforms and production facilities have also made improvements, and we also stress interface integration performance capabilities in order to keep up with customer demand, so this is a challenge. However, taking on such challenges is what gives EverFocus its overall customized solutions service an advantage in the market, so they are also welcomed. All these factors together are what make our business structure.Q: Is such customized service also what's in demand in emerging markets?A: Basically yes. However, because some emerging markets want pricing for products to be lower than what we produce them at, there needs to be a service attached as well. If there isn't such a business model then orders could just be shifted to China. Having a value-added service is important, so creating that service in order to meet trends in the market is something we are constantly researching.EverFocus product marketing manager Tony Lin Photo: Alex Wolfgram, Digitimes, March 2014

China touch panel makers shipped 148.8 million touch panels in the fourth quarter of 2013, according to the latest DIGITIMES Research China Touch Panel Tracker. The report for the first quarter indicated that shipments will drop about 5% on seasonality.However, some segments in the market will see growth in the first quarter. From the fourth quarter of 2013 to the first quarter of 2014, China touch panel makers' largest growth will be in the notebook and large tablet segment (larger than 11-inches), with makers such as O-Film Technology and Mutto Technology focusing on metal mesh thin-film technology. The technology coupled with the makers' low-cost advantages gave the China makers 110.7% on-quarter shipment growth in the fourth quarter of 2013 and will give them another 13.4% on-quarter growth in the first quarter of 2014 despite the first quarter traditionally being a slow shipment period in the market, according to Digitimes Research.In terms of touch panels used in handset applications, the makers' overall shipment proportion of thin-film type panels will rise to 71.1% in the first quarter of 2014 due to demand for the technology in entry-level and mid-range handsets from vendors such as Samsung Electronics, Huawei Device, Lenovo and Xiaomi. O-Film is expected to see some of the biggest increases in shipments for the technology during the quarter following shipments of 30 million units in the fourth quarter of 2013.Regarding tablet touch panel applications for sizes below 11-inch, China makers are seeing orders largely from Samsung and Lenovo and saw 24.3% shipment growth in the fourth quarter of 2013 as a result. Samsung and Lenovo are continuing to put in orders throughout the first quarter of 2014 while at the same time the China makers are seeing decreased demand for glass-type touch panels, causing the makers' shipments of thin-film touch panels to exceed glass-type ones for the first time ever. O-Film is expected to see the biggest growth for tablet thin-film touch panel shipments during the first quarter of 2014 at 8.57 million units or 40.1% on-quarter growth, said Digitimes Research.More information about China Touch Panel Tracker service can be found here. Free sample (PDF) is avaliable for download. If you are interested in this product, please register first.About DIGITIMES ResearchDIGITIMES Research is the research arm of DIGITIMES Inc., Taiwan's leading high-tech media outlet. Operating as an independent business unit, DIGITIMES Research focuses on monitoring key high-tech industries, while also guiding clients toward suitable new business as well. Market intelligence and analysis is provided to more than 1,000 corporate customers worldwide. Research and consulting services cover a full range of industries, including information and communications technology (ICT), flat panel display (FPD), renewable energy and semiconductor design and manufacturing.

China-based smartphone players' shipments to markets outside of China currently account for 20% of their total volume. As demand from the local market - which has been their main growth driver - is weakening and the China-based players' combined shipments will only grow by 26.7% on year in 2014, expanding their presence in overseas markets has become a priority. However, expansion in overseas markets needs a large amount of resources and manpower, and a business models that is completely different than the one used in China. Therefore, despite the fact that many second-tier players are aggressively trying to have a share of the overseas markets, most of them are unlikely to achieve good results in the short terms. First-tier players such as Huawei, ZTE, Lenovo and TCL, however, have more advantages; they have already been operating in other countries for a while. In 2013, Digitimes Research's figures showed that ZTE shipped 19.1 million smartphones to markets outside of China, trailed by TCL with 15 million units. Huawei and Lenovo ranked the third and fourth, respectively with both having less than 10 million in unit shipments. Although TCL is not considered a first-tier smartphone player in China, its strong sales growth from exports had significantly narrowed its shipment gap with the first-tier vendors (Lenovo, Huawei, CoolPad and ZTE), showing that China players are able to quickly stimulate demand for their products in overseas markets by selling them under international brand names. TCL acquired the handset business of France-based Alcatel in 2004. After three years of losses, the handset business started to turn around in 2007 and since has seen stable growth in shipments to overseas markets. TCL's smartphone shipments to overseas markets surpassed six million units per quarter starting the second half 2013. TCL only has less than 10% of its handsets shipped to the domestic market in China, and since its TCL brand has a higher recognition than its sub-brand Alcatel in China, the vendor is mainly selling its Alcatel smartphones in markets outside of China, adopting a strategy of pushing different brands for different markets. Lenovo has already been selling its own-brand smartphones in Asia, Latin America, Eastern Europe and Africa. Digitimes Research expects its acquisition of Motorola Mobility to help the vendor further expand in North America, Europe and Latin America. For North America and Western Europe, Lenovo will release smartphones under the Motorola brand, but will promote both brands - Motorola for the high-end/mid-range segment and Lenovo for the mid-range/entry-level segment - in emerging markets and China. By covering all the market segments, Lenovo is aiming to significantly boost its shipments to ease the impact of its different product lines fighting each other on the market. Lenovo has revealed that it is planning to release products under Motorola in the second half of 2014 and will sell them in both overseas markets and China. With its dual-brand strategy, Digitimes Research expects Lenovo's smartphone shipments to reach 60.9 million units in 2014, surpassing Huawei and become the leader of the China smartphone industry. TCL, with surging shipments to overseas markets, is expected to ship over 25 million smartphones in 2014, widening its gaps with other second-tier players. Both cases - Lenovo and TCL - demonstrate the importance of brand recognition in boosting their shipments to overseas markets.