Since the start of the trade war between the US and China in 2018, the global industry has been rethinking the need for globalization and regionalization planning. The pandemic has also seriously challenged the previous forms of global labor division. It has accelerated the reshuffling process of the global supply chain, with short chains and regional production becoming the new indicator.
With the reshuffling of the global industry chain, how can Advantech, as a global leader in IPC, and Taiwan maintain their influence in the global IPC market?
In an exclusive interview with DIGITIMES Asia, Advantech chairman KC Liu pointed out that as of now, Taiwanese IPC suppliers have already achieved an estimated market share of over 60% in the global IPC sector. With the increasing variety in applications and market opportunities, suppliers need to have new ideas for development.
If the IPC sector stayed in the hardware section for the next 10-20 years, it would trend toward becoming a traditional industry. Therefore, through the combination of hardware and software, a comprehensive transformation will be brought to the IPC sector. However, for IPC suppliers to enter the vertical market, the collaboration with the software sections still needs to evolve. One example is utilizing ESG to expand to new fields for IPCs.
Q: As a leader in the global IPC sector, what is Advantech's direction when initially planning for its globalization?
A: Since Advantech's founding, it has established locations in more than 20 countries. In terms of operation, it's separated into four major regions managed by regional presidents.
As with globalization, it's been part of Advantech's plans since it was founded, as all of the founding team comes from an international company: HP. Because HP was already a global corporation back then, we've been trained to think about the industry and market from a global structure from the start.
Experience also told us that every successful business thinks and plans from a global standpoint, which has strengthened Advantech's persistence with globalized development.
Q: With changes in the global political and economic environment, what is Advantech's current production ratio between China and other regions? What are your future plans and considerations for new factories?
A: For the production/capacity ratios, our factories in Kunshan, China account for around 50%. The other 50% is produced at the Linkou science park in Taoyuan, Taiwan. Both production bases still have some reserved land and are estimated to be sufficient for the next 5-7 years. Therefore, there are no plans to build new factories anywhere else for the next five years.
Although there aren't any plans to build first-phase (SMT) production plants in other areas, Advantech does have new expansion plans from a global demand perspective. For example, the current plan is for Advantech to establish its new North American headquarters in California. The HQ will have functions such as logistics, storage, and service center. Based on local demand, there may also be production lines focusing on assembly and application. However, this plan will only likely be put into motion in 2023.
Q: In this wave of industry reorganizing, to the downstream electronics manufacturing sector, what is the future development potential and space in Taiwan?
A: Taiwan's competitive strength in the ICT sector has been continuously growing, and by a significant degree too. This is because as the ICT sector moves from industrial automation to AIoT, the amount of required hardware is growing as well. Taiwan's market share in the hardware market is also increasing. In terms of the IPC sector, there are very few companies left outside of Taiwan, and those aren't large companies.
It's estimated that Taiwan's global market share in IPC has already surpassed 60%. Keep in mind this is mostly the IPC sector, not automation as a whole. Right now, more and more Taiwanese businesses are participating in the sector and have shown revenue growth. This is because Taiwan has a very complete supply chain.
IPC's business model of low quantity with high variety requires a tight ecosystem, which is available in Taiwan but not really in other countries. Hence why the ICT sector still has quite a bit of potential and space for development in Taiwan.
Q: What about the talent shortage or other environmental factors in Taiwan? Won't that affect the IPC industry's development?
A: The talent issue is not just a Taiwan issue but a global issue. It's one of the effects that's caused by the pandemic changing our industries/lifestyles.
Many of Advantech's staff came from the consumer electronics sector since the two sectors need similar talents. IPCs and semiconductors are quite separated, requiring very different expertise. Therefore, the talent competition is not that significant between the two.
In short, while the talent shortage is certainly an issue, it cannot be solved just by moving to another region. The key is to pinpoint the core talent required to develop the business.
Q: Facing the currently unavoidable environmental influences, what is Advantech's core development concept?
A: Advantech aims to be a key supplier with international influence in the AIoT sector. Therefore, Advantech will develop brands and the AIoT application market. In order to become a brand supplier, continued innovation is a requirement.
In addition, a world-class company needs to have a world-class market that shares the same mother tongue, a market big enough to support the development of brands and innovations. It's why the US and China have so many world-class brands. While it's the same in Europe, the multi-language nature of the region has resulted in some limitations.
Because of this, Advantech will continue to develop the China market regardless of the political situation, since Taiwan alone is too small. Our experience shows that China is a major innovative brand market, especially when it comes to software applications and the software-hardware integration of AIoT solutions. Thus, products need to launch in China first before they can make their way to other markets.
Current revenue contributions show that China and the US both account for nearly 30% of Advantech's total revenue. If they have to be separated, the US will focus on localized production while China will focus on standardized products.
Q: What is the current condition of the China market?
A: Right now, the China market needs to foster its own semiconductor and CPU industry, hence the demand for "China Chip," something Advantech is currently working on. This benefits the IPC sector, as China's products can be developed with China's home-grown chips, and products outside of China can be developed in Taiwan.
As of now, China's products on the RSIC structure are very competitive. However, as with the x86 structure, it's still dominated by US brands. For IPC products, the focus is on low power consumption and not high performance. Therefore, products with the Arm structure will be more popular.
Q: Right now, there is an ESG trend among global brands. Not only are the brands themselves participating, but they've requested the supply chain to gradually comply as well. What kind of impact and opportunity will this bring to Taiwan's supply chain sector?
A: Despite the massive business opportunities of ESG, things like special energy savers, large systems, batteries, or energy storage are still difficult for IPC providers to break into. Therefore, for the IPC sector, the biggest opportunity for ESG is the energy-saving market.
Advantech already has certain solutions prepared to participate in this sector. The biggest difference with this solution is that with the new smart energy-saving application, system integration (SI) providers no longer write their own codes. Instead, they provide an application solution that can be directly configured. This "No Code" concept allows corporations, hospitals, and organizations to build an energy-saving environment quickly.
Designing ESG to be software not only speeds up the introduction and shows efficiency, but also provides quick regulatory applications. Previously, SI providers need to understand many things before they can deploy the applications. Now, it's relatively easy for SIs since many hardware have completed the integration and the codes are simplified, which has reduced the entrance barrier for SIs.
Client requirements on ESG like zero-emission or green energy do increase costs. However, this is something all suppliers face. Since everyone is equal, it's not that big of an impact.
Q: Any advice for the IPC industry?
A: If the IPC sector stayed in the hardware section for the next 10-20 years, it would trend toward becoming a traditional industry, unable to operate at a small scale.
Although the IPC sector is not that urgent for transformation, it still needs to evolve to the next stage, which is hardware+software. Hardware on its own has low technical difficulty and a lower barrier of entry.
Therefore, IPC needs to evolve to AIoT application through the integration of hardware and software. The future of IPC is to introduce vertical solutions. This requires a platform and industry knowledge. The group benefit of software in the Taiwan market is still relatively low due to the lack of collaboration between providers. One example to follow may be the semiconductor sector, which is highly collaborative and has naturally formed a stable ecosystem.
IPC software has yet to have an ecosystem because the sector has yet to realize that. Once the market shifts to AIoT, it will be several times larger than the hardware platform market. To create value, there needs to be an industry ecosystem. This requires collaboration between businesses, which may be a bit difficult. It would be more likely if we approach it from academics.
Advantech chairman KC Liu