Windows boost
The release of Microsoft's Windows 2000, expected in mid-February, will support Intel's initiatives, hastening the evolution of the PC. It will also generate a mini sales boom for Taiwan's companies, as PCs and peripherals are upgraded to match the new operating system.
Meanwhile, the outside of the machine is changing too. Inspired by the success of Apple's colorful i-Mac, and encouraged by Intel, local manufacturers are testing a variety of new formats. Some of them are very different from the traditional staid and sturdy beige box -- "really cool" in the words of one insider who has seen prototypes.
Manufacturers need to take steps like this to differentiate their products because, as an Acer executive says, anyone can make a PC. The market is indeed a free-for-all, and as a result, profit margins have fallen.
"There are no entry barriers to PC production," agrees Henry King of IDC.
Notebook computers are a different story, as newcomers like Chuntex found out to their cost this year. But if a manufacturer can learn to assemble the intricate jigsaw puzzle that is a modern notebook PC, then profits are high.
Taiwan is now the world's number one notebook maker in terms of units shipped -- around nine million in 1999 -- with almost 50 percent of the market.
Next year, an appreciating yen will help increase notebook sales to Japan, and IDC predicts Taiwan's production will grow 37 percent.
The island's Achilles heel continues to be the LCD screen, which represents more than 30 percent of the cost of the average notebook PC. If these were not so hard to find, then Taiwan might have made another million notebooks, and would have paid far less for the screens in them.
The response of local manufacturers has been simple: if you can't buy it, make it yourself. Taiwanese LCD screens will be rolling off production lines at six new factories by early next year. By next Christmas, these will ensure a ready supply of screens for Taiwan's notebook makers. Better news still, competition means the screens will be cheap -- so cheap, unfortunately, that the LCD factories may barely make a profit.
New frontiers
Falling profit margins are a way of life for Taiwan's high-tech manufacturers. As the margins slide, manufacturers consolidate production and then move it overseas where labor is cheaper.
Some are looking at ways to step out of this cycle into knowledge-based service industries, such as software and the Internet. Acer, for example, is investing tens of millions of dollars in both these sectors, as are local venture capitalists.
This is fortunate, because, in Taiwan, raising money on the public stock markets impossible for companies whose main assets are ideas, and whose history is measured in months.
The government is muddling its way towards easing listing barriers for Internet-related stocks. The official moves may be late, but they are making a few of Taiwan's first generation of Internet companies put their travel plans on hold and consider raising capital at home.
Some should have listed on local exchanges by the second half of next year. And hopefully Taiwan will enjoy some of the benefits of the Internet bonanza before -- if pessimists are to be believed -- the bubble bursts.
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