Demand for networking equipment likely to slow

Taiwanese networking-equipment manufacturers are anticipating a drop in order during the second half, with profit margins getting squeezed and production value declining, a government think tank reported.

"With the final selling price of networking equipment dropping significantly, we estimate that production value for local makers in the second half will decline 3.2 percent over the same period last year," Tony Wu (吳顯東), a chief researcher at the Market Intelligence Center, said.

The sector is estimated to reach US$3.09 billion in production value by the end of this year, the center said.

Networking-equipment products include cable modems, ADSL, switches, hubs and local area networks (LAN) and wireless local area networks (WLAN).

Taiwan's networking-equipment industry is being propelled this year by demand for xDSL and WLAN.

DSL (digital subscriber line) transmits high-bandwidth information over ordinary telephone lines, while xDSL refers to DSL variants, such as asymmetric DSL (ADSL) and high bit-rate DSL (HDSL).

"For xDSL and WLAN, local makers may command 57.7 percent and 73 percent, respectively, of global production before the end of the year," Wu said.

But profit margins are quickly being eroded.

"WLAN interface cards that used to price at US$100 each last year went for US$40 last month," Sun Min-cheng (孫民承), a researcher at center said.

He said prices may drop 10 percent every three months.

Taiwan's WLAN interface-card shipments are up 110 percent this year over last year. The production value, nevertheless, may only grow 47 percent to US$447 million, Sun said.

Profits of interface-card makers such as GemTek Technology Co (正文), D-Link Corp (友訊) and Accton Technology Corp (智邦) will be hit.

Profits from xDSL will also begin to dwindle.

"In the second half of this year, local xDSL manufacturers may see a 50 percent growth in production, while the total production value is estimated to decline 13.8 percent from the same period last year," said Wang Huei-chung (王蕙君), an analyst at the center.

Most ADSLs are sold at public auction, with profit margins getting squeezed in the bidding process, she said.

As the broadband Internet market in North American slowswith the sluggish US economy, Taiwan's ADSL exporters are starting to target Japan for sales.