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Tag: foundry

Sovereign Wealth Matters

My friend Serena, who you may know as one of the co-founders of My Mom is a Fob and My Dad is a Fob, is currently trying to find a way out of Thailand, something which protests at Bangkok’s two airports has made much more difficult. I wish Serena and her family the best of luck and a safe trip back.

imageWhile a lot of press attention is dedicated to the direct why’s of the protests (demands that the current Prime Minister step down because of his ties to a previously deposed Prime Minister, his brother), less attention is paid to the role that Singaporean sovereign wealth fund Temasek Holdings played in the whole ordeal.

The Former Prime Minister made the mistake of selling his large 50% stake in Thai telecommunications company Shin corporation to Temasek, despite:

  • being accused of insider trading only a short while before
  • violating a law banning turning over majority control of telecommunications companies by foreign companies
  • making the sale without paying any capital gains taxes

The result of these accusations were widespread riots, the Prime Minister dissolving Parliament, and, eventually, him being removed by a military coup.

image And so, what have we learned here? Sovereign Wealth Funds are not just mere curiosities whereby oil-rich (Dubai, Mubadala, Norway, etc.) and Asian countries (China, Singapore) buy up HUGE stakes in companies (some of the research I did on these funds back in January put their total global size at about ~$3 trillion). They have serious political consequences, as the world is only beginning to discover:

Yes, we’re in the midst of a global recession right now, but think – what better time for a sovereign wealth fund to buy up companies then when the prices are low and when governments are least likely to raise a fuss about someone willing to inject capital into their struggling businesses?

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Made in Taiwan

I’ve been on my current case for about 3 months. As I’ve mentioned before, it is a high level strategy case for a technology client. As a result, I’ve been able to do a great deal of fairly interesting work researching various technology markets and trends, ranging from the typical (Internet search) to the more esoteric (grid computing), as I help the client scope out successful strategies by other technology players and possible expansion opportunities.

image During the course of this research, I have been surprised by many things, but what I found most surprising on a personal level was how important Taiwan is to the global technology market.

This is a particular point of pride for me, for despite Taiwan’s pre-eminence as an economic power and it’s fascinating fusion of Western, Japanese, and Chinese influences, the island is not given the same respect or attention as Hong Kong or Singapore. Despite a vibrant political system, it has no seat on the United Nations, no diplomatic recognition by any major country, and even to the United States which guards the island as if it were its own, it is the black sheep of the US’s circle of friends.

And yet, the world as you or I know it would not be able to get along without it:

  1. Taiwan is the center of the world’s semiconductor foundry business. Because cutting-edge semiconductor factories (called fabs) are so expensive to manufacture, only the largest semiconductor firms (such as Samsung and Intel) have the annual sales numbers to justify building their own factories. Smaller players are better off outsourcing their production capacity to dedicated semiconductor factories, called foundries. Today, almost all semiconductor manufacturers use the services of a foundry to build most if not all of their semiconductors. The world’s two largest foundries, TSMC (Taiwan Semiconductor) and UMC (United Microelectronics) are located in Taiwan, and together control approximately 60% of the world foundry business (the next largest foundry is only half the size of UMC, which is itself only about one third the size of TSMC!) and exert significant influence in the global semiconductor industry.
  2. Taiwan is the center of the world’s electronics manufacturing services. What many people don’t realize is that companies like Apple and Dell tend to only specialize in marketing and some design, but not in manufacturing (which would involve building a factory, gaining manufacturing expertise and skill, and other expensive and difficult things for a firm trying to stay lean and on the cutting edge). These firms thus outsource their manufacturing to specialized firms called Electronic Manufacturing Services (EMS) firms. The world’s largest EMS company by far is the Foxconn/Hon Hai conglomerate which is responsible for about 20% of the world’s outsourced electronics manufacturing, almost double that of the second largest firm. Never heard of them? You’ve certainly heard of its products: the MacBook Pro, the iPhone, the iPod, the Playstation 3, the Wii, the Xbox 360, graphics cards for AMD/ATI and NVIDIA, … the list goes on.
  3. Taiwan is the world’s original design manufacturing capital. Original design manufacturers (ODMs) go a step further than EMS firms — they actually do provide some of their own design services (which begs the question of what we’re paying Dell and HP and Apple for when they’re outsourcing design to ODMs). This is one reason that many ODMs are also original electronics manufacturers (OEMs) — companies which attach brands to the electronics themselves (think Apple, Lenovo, Dell, etc.) Of the top 10 ODMs in the world in 2006, at least 9 are Taiwanese companies (and that’s because I was too lazy to look up the last one — TPV technology) — those firms alone control nearly 70% of the global ODM market — and they include Windows Mobile phone manufacturer and Open Handset Alliance member HTC and the rapidly growing computer OEM ASUS.
  4. Taiwan is also home to D-Link and Acer. The latter of which recently is trying to resurrect dying brands of eMachines and Gateway.

Long story short — Taiwan matters, and I hope this will be the first in a series of posts that explains a bit more about the country that I come from.

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