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This New Threat To Taiwan's Economy Is Sitting Right In Front Of You

Taiwan, the world’s 20th largest economy, was an undisputed high-tech hardware hub for decades. Now officials and entrepreneurs are scrambling to sustain the $131 billion industry against a list of losses: Exports had declined for 17 straight months through July. Tablet PC manufacturing had already leeched into China, which is perfecting its tech supply chain and product quality to complement a booming domestic IT sector. Taiwanese contract assembly giant Hon Hai Precision hopes to develop more of its own stuff. And the chief Taiwanese phone maker HTC is struggling for a new business model.

Now there's a new threat. World demand for notebook PCs, such as the one that might be right in front of you now, is declining. Original design manufacturing contracts from Taiwan make up more than 90% of global notebook production, Taipei-based Digitimes Research estimates.


A model displays a notebook PC by Japanese electronics company Toshiba. (Photo credit: YOSHIKAZU TSUNO/AFP/Getty Images)

Global notebook shipments are forecast to fall 4% this year from 157.9 million units last year and fall 4.5% next year, Taipei-based tech market research firm TrendForce said in a report Nov. 16. The fall in notebook shipments springs from rising component prices and supply shortages, TrendForce says. It forecasts a "structural supply shortage" next year.

In the first half of 2016, a decline in global demand, the "fading out of Toshiba" and more in-house production by some brands (as opposed to contracting) hit Taiwan notebook makers, says Jessica Hsu, a senior analyst with the Marketing Intelligence & Consulting Institute, a government-backed tech research firm in Taipei. Toshiba announced in March it would quit selling PCs to consumer masses outside Japan.

Notebook shipments from Taiwan should come to 127 million next year, down from 150 million in 2013, Hsu's company says.

Even if the components fell into place at the right prices, consumers might still prefer over a new PC to upgrade their “ecosystems,” techie speak for software matrices that include stuff such as search engines and cloud storage. Google and Apple offer ecosystems users of laptops plus other devices.

"Taiwan used to be a notebook kingdom," says Liang Kuo-yuan, chairman of the Yuanta-Polaris Research Institute, an economic think tank in Taipei. The tech industry is still too bent on old-form hardware, he says. "The scale of Taiwan’s ecosystem technology is too small," Liang says. "We have no good platforms -- platforms with influence. We have no search engines."

The flagship Taiwanese PC brands are Acer and ASUSTeK Computer. Taiwan-based Quanta and Compal specialize in contracting for brands overseas. Shipments from the three largest Taiwan-based contract producers fell 12% last month, Digitimes Research says.

Although the Marketing Intelligence & Consulting Institute expects a near-term pickup in notebook orders as companies replace hardware, Taiwan officials are taking no chances anymore with the tech industry, which is about one-fifth of GDP. And it's because of news like the drop in laptop shipments.

President Tsai Ing-wen’s cabinet will create “Asian Silicon Valley” by 2023 to help startups and stimulate an Internet of things sector. Taiwan's engineering talent that normally lands in hardware jobs can be redirected, officials have said. She has appointed the government’s first digital minister. And on Thursday the premier announced a "digital country-innovation economy development plan" to run for the next eight years. The plan would add Internet bandwidth and protect Internet user rights to "elevate Taiwan’s information power," the cabinet says in a statement.


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