Talking Taiwan Tech
Market Q&A with Spencer White, head of research, Merrill Lynch Taipei, and Calvin Chang, analyst, Jardine Fleming Taipei
December 11, 1999
Web posted at 1 a.m. Hong Kong time, 12 p.m. EDT
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Remember the word "contagion"? Commentators started using it when they got sick of "crisis"--which didn't take long--and it stuck. To its credit, "contagion" was a lot more evocative, because that's sort of how the crisis spread. Like the Bubonic Plague. So today's deep thought: could we be seeing the start of a new East Asian contagion--as in, infectious optimism?
The Kospi rallied marvelously, reaching its highest level since June; the Hang Seng added a few points to yesterday's 382-point triumph, and even the Philippines (up a stonking 2.5%!) and Thailand (up 1.6%) joined in today. No, not an Asian market in the red today--save for Taiwan. The same staunch Taiwan that refused, you might recall, to succumb to the "contagion" now seems to be left out of Asia's contagious upside, for no good reason at all. There was, of course, the September earthquake, which caused $9.3 billion in damage. But November sales figures, posted in today's papers, were good. Add to that Compaq's Thursday announcement that it was outsourcing an extra 20% in computer hardware to Taiwanese companies. But even Arima and Mitac, who make PCs and notebooks for Compaq, decided to shed instead. Spencer, what does this all mean?
A: Overall, sentiment has been weak. There's nervousness politically ahead of the elections, nervousness about the rate of economic recovery, nervousness especially about relations with China after the elections, disappointment about MSCI's announcement that they were going to stagger Taiwan's raised weighting as opposed to throwing it all in at once. So you get something like last month's unsubstantiated report that mainland submarines were mobilizing, and it's a perfect excuse to sell.
Q: Okay, well since everyone else is selling, I'm going to be a contrarian and buy. But I'm not enough of a contrarian that I'm immune to the lure of the New Economy. I've read Taiwan's mobile phone penetration is nearing 45%, and that soon I'll be able to use my phone to browse the Web. How do I buy into this in Taiwan?
CNNfn: Asian markets end higher|
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ALSO IN TIME
A: Far Eastern Textile has been gaining lately on its 51% stake in Far EasTone, an ISP, portal and mobile phone operator with 1.6 million subscribers. Now, the reason I think this is very exciting is because the most difficult thing for a portal company to do is gain eyeballs, right? But if you've got 1.6 million subscribers already, whose billing addresses, whose spending profiles, whose telephone habits you know, you can leverage your subscriber base very, very effectively. Far EasTone will be launching a variety of new services using a portal in its wireless format--you'll be able to view share prices, read the newspaper, dial into your Internet broker and trade stocks--it's really quite fantastic.
Q: Who in Taiwan is making these phones?
A: The Acer Group is making one. It's going to have dramatic implications for investors, though. Imagine a market this size where the man on the street can trade stocks over his mobile phone while he looks at the share price on the display screen! The Taiwanese market is 90% retail investors. Pacific Cellular--now Taiwan Cellular--has plans to pursue similar technology with Phone.com, and we've also heard TransAsia Telecom has a plan, but Far EasTone is the first mover in terms of providing and integrating the service, so it's probably one of your best bets. It plans to list next year sometime, possibly on the NASDAQ.
Q: Calvin, I keep hearing about Via Technologies. Specifically, I keep hearing I should buy it. Practically every investment house I can think of has a buy on it. Now, my question is, whilst I was in the States I read an article about how the Via chairman is going up against Andy Grove and Intel. So, my question is, if he's that delusional, why should I buy his company?
A: Well, let's start from the beginning. In the world of microprocessors--a huge, vast, $25 billion market--one single company dominates. They not only dominate, they completely obliterate the competition. They've got more than 90% market share. And not only do they have market share, they also essentially determine the direction of the technology. How fast computers will run this year--Intel decides it. They set the market. Challengers of Intel have, time and again, failed. National Semiconductor decided to get out while they could--that's why they sold Cyrix to Via. IDT decided to get out, so they sold its division to Via. AMD (Advanced Micro Devices) is still hanging around, but their CPU division has yet to turn a profit. Now, Via has no experience whatsoever in designing processors at all, although they have been extremely successful selling chipsets. Via's a new company, founded in 1990, and since then sales have grown to $350 million, so we're talking about an amazing growth story. At this point, they're reaching a sort of critical mass--any company that grows that quickly does. Via is no longer just a small chip company, it ranks in the top 10--and I think the top five--in IC design in the world. It's gaining visibility. And it has to take some bold, unconventional moves to keep at this pace. But it's your typical David and Goliath story. Intel's revenue is something like $25 billion, so that's about eighty times Via's.
Q: So they've expanded dramatically?
A: Well, to stay in the game they've got to acquire capabilities. This is because, at some point--this is Intel's vision--chipsets are going to dwindle further and further down, from being comprised of six chips to being comprised of two or three, eventually so that all functions will be performed by a single chip. It's called chip integration, and basically it means that the functions now performed by discrete chips--graphics, music, the CPU--are going to be consolidated into fewer and fewer chips. With this in mind, Via's doing all the right things, and it's going to be risky, but it understands that to stay afloat today you can't simply design and market discrete function chips, because those chips are going to be obsolete.
Q: Okay, moral of the story: buy Via, buy the underdog, buy Taiwan. But this week, you might have wished you bought Korea.
By Maureen Tkacik/TIME Asia
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