Computer network equipment makers benefit from 3Com

Industry observers yesterday expressed optimism about US networking equipment giant 3Com Corp's plan to establish a product design center in Taiwan, saying the investment would strengthen collaboration and enhance local companies' competitiveness.

In accordance with 3Com's cost-reduction strategy announced late last week, the company decided to set up a product design center staffed by 3Com employees and the company's local manufacturing partners. The center will be responsible for the design and manufacture of low-end, standardized items.

The center is expected to start operating in late November with around 20 researchers and will expand to more than 60 employees by May next year, said Candy Fu (傅文英), marketing manager of 3Com Taiwan.

"The operation is the first of its kind that 3Com has established in the Asia-Pacific region," Fu said.

Network equipment makers such as Accton Technology Corp (智邦) and D-Link Corp (友訊) are set to benefit from the plan. Both companies have already tied up with 3Com to produce switches on a contract basis.

"Obviously these Taiwanese manufacturers are expected to receive more orders [from 3Com] in the future," said Nathan Lin (林宗賢), an analyst at SinoPac Securities Corp (建華證券).

Last year, 15 percent of Accton's sales came from switches shipped to 3Com, said Cheng Chia-chun (鄭家俊), an executive of Accton, the nation's largest network equipment maker.

"The proposed center will strengthen our relationship [with 3Com], and help speed up the time it takes to get products to market," he added.

Accton reported NT$1.4 billion in sales last month, a 7.28 percent increase over the same period last year and a monthly high for the year.

Another analyst urged local manufacturers to seize the opportunity for further improvement.

"Most Taiwanese companies currently still can't meet global players' requirements in producing high-end networking equipment," said Wang Huei-chung (王蕙君), a researcher at the Market Intelligence Center, a semi-official research institute in Taipei.

Companies should try their best to improve software design capabilities in an effort to offer end-to-end solutions, rather than just producing switches, she said.

The average profit margin for making low-end networking equipment is about 10 percent, and that figure could more than double to 25 percent by making high-end products, Lin said.

Taiwan shipped 87.4 million switches worldwide last year, accounting for nearly 50 percent of the global market. That number is projected to increase 22 percent to 106.6 million units this year, according to MIC.

Following two years of bleak sales amid the nation's slow economy, Taiwanese equipment makers are expected to profit from the rebounding economy this year, Lin said. With corporate spending in the US and Europe starting to increase and companies expanding since June, the demand for network equipment began to rise, he explained.

"However, we will now see steady growth in this sector and we expect a significant pick-up next year," Lin added.