Wed, Jun 24, 2015 - Page 13 News List

Slowdown blamed on cloud effects

By Crystal Hsu  /  Staff reporter

The nation’s economy has shown signs of a slowdown because the rise of cloud computing has cut demand for client hardware from local technology firms, most of which fail to appreciate the growing importance of software and service, Yuanta-Polaris Research Institute (元大寶華研究院) said yesterday.

The analysis drove the Taipei-based think tank to trim its GDP growth forecast to 3.3 percent for this year — down from 3.66 percent projected in March — as a result of disappointing exports.

“Today, the global high-tech factory model is increasingly running out of steam... Taiwan is being squeezed between cheap competition from China and the strong brands of global leaders,” Yuanta-Polaris president Liang Kuo-yuan (梁國源) said in a report.

More importantly, the model is incompatible with the “Internet age,” which is driven by software and services, while the value of hardware declines, the report said

The virtualization of servers, permanent storage and even applications is a major technology component of the cloud-computing model and significantly reduces the demand for servers from Taiwanese companies, the report said.

“As more data and applications are being moved into the cloud, the demand for hardware decreases,” Liang said, citing studies by others.

Cloud computing presents a major negative impact to the already marginal profit picture that threatens the Taiwanese hardware manufacturing industry, the report said.

The nation’s economy has shown heavy dependence on electronics exports, which have performed disappointingly over the past five months because hardware suppliers account for a big share of the GDP makeup.

The trend is bound to deteriorate, as PC shipments are expected to contract further this year, Yuanta-Polaris said.

Taiwan’s information and communications technology (ICT) industry is structurally stuck one level below the high-margin global brands in global production networks, Liang said.

Making things worse, China, the biggest destination for Taiwanese exports, is grooming its own supply chain and cutting its reliance on Taiwan for technology imports, he said.

The “made in China” program indicates there is a 60 percent overlap with Taiwanese exports, Liang said.

Already, the share of Taiwanese exports in global trade has declined from 1.9 percent in 2005 to 1.7 percent last year, while the contribution from China over the same period grew from 7.3 percent to 12.4 percent, the report said.

South Korea climbed from 2.7 percent to 3 percent over the same period, Yuanta-Polaris said.

“The government and the ICT industry must aggressively tap business opportunity linked to cloud computing to stay viable and competitive,” Liang said.

Currency strength plays a secondary role in the medium and long-term, though exporters like to argue otherwise, the report added.

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