Information technology (IT) sector firms have shown a growing interest in branching into the automotive electronics industry in pursuit of high gross margins, but they need to be prepared for initial losses, a researcher at the semi-official Industrial Technology Research Institute (ITRI, 工研院) said yesterday.
The auto-electronics sector looks promising, but it usually takes one to two years for companies to pass the licensing requirements and another three to four years of verification before automakers will agree to adopt their products, said Lynn Chen (
She added that the sector also requires a long-term commitment as makers of electronics products for cars have to supply products for at least 10 years to support after-sale services.
"[The IT companies that want to make inroads into the sector] need to get ready for a money-losing period that could drag on for as long as five years," Chen said on the sidelines of a seminar yesterday. "Only big companies can play the game ? and the big becomes bigger."
The cost of auto electronics is expected to grow by a compound annual growth rate (CAGR) of 4 percent to reach nearly 40 percent of the cost of building a vehicle in 2010, up from 28 percent last year, ITRI said, citing IC Insights figures.
As a result, the car electronics market worldwide is expected to increase at a CAGR of 7.5 percent to US$163.5 billion in 2008 from US$122.5 billion last year, according to Strategy Analytics' statistics.
Despite the lucrative market outlook, it will not be easy for Taiwanese companies to tap into the market, since Japanese, European and US automakers have formed strong and long-lasting collaboration with their auto electronics suppliers, such as Toyota Motor Corp and Denso Corp, or General Motors (GM) and Delphi Technologies Inc, Chen said.
Taiwanese auto electronics firms should therefore target China's automakers as well as the after-market segments, in light of expected high growth and the strong footholds Taiwanese auto assemblers have established in the country, she said. China’s automotive electronics market is expected to jump by CAGR of 19 percent to over US$10 billion in 2008, according to Strategic Analytics. In a bid to bolster the nation’s industry, the Cabinet’s Development Fund (開發基金) decided on Wednesday to invest NT$1.5 billion in a new joint venture with paid-in capital of NT$5 billion to be formed in May by heavyweight automaker Yulon Motor Co's (裕隆) and leading IT companies, including Hon Hai Precision Industry Co (鴻海), Asustek Computer Inc's (華碩) and Compal Electronics Inc (仁寶). The joint venture could stand a better chance than the nation’s individual auto electronics manufacturers in light of its strong financial background, Chen said.
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