When this annual report was published a year ago, the reality of a global economic downturn had just begun to loom large. The banking and financial services sectors were the first to take a hit, but all industries, including the RF and microwave sector, were bracing themselves for the full impact of a global financial crisis and recession. The threat has been heightened by the two things that are most difficult to combat and legislate for—uncertainty and unpredictability.
Surely though, if there was one geographical region in a position to ride the economic storm, it would be the Asia-Pacific. In recent years the region has been the Utopia of development and expansion, the focus of internal activity and outside investment, and a hub of technological innovation. The established countries have been innovators and models for commercial development, while emerging nations offer competition through low cost, large scale mass production.
Market growth has been stimulated by consumer demand both from booming home markets in developing and emerging countries, eager to embrace the latest technology and innovation, and from industrialized countries across the globe that have exhibited an insatiable appetite for low price products.
After a period of growth and development, Asia is facing challenges that were largely unforeseen. One of the first opportunities to gauge how it is faring will come at the 2009 Asia-Pacific Microwave Conference (APMC 2009), which will be held in Singapore from 7 to 10 December. The event is a platform for the region’s technological research and development, a forum for networking and will provide an opportunity to gauge the current climate.
This article aims to provide an insight into the prevailing market conditions and the development and implementation of technology. It does not purport to be a comprehensive market overview, but offers a snapshot of the current status of industrial development and identifies the main trends influencing it. It also provides a commercial perspective as executives from a small cross-section of companies actively participating in the Asian RF and microwave industry contribute to the ‘company survey’.
ASIAN PERSPECTIVE
In the past year statistical forecasts have been amended, rewritten and even abandoned, so the emphasis in this article is on the technology rather than the numbers. Telecommunications is a major area of RF and microwave activity, with the semiconductor and electronics industries also being significant.
Telecommunications
The Asia-Pacific region has been the fastest growing telecommunications market in the world. The complete developmental spectrum is represented from the established markets of Japan, Singapore, South Korea, Taiwan and Hong Kong to the potentially vast markets of China and India.
In the mature markets there is near saturation of mobile subscriptions. The latest handsets are readily available, the range of services offered is comprehensive and operators are looking to technology to provide differentiation, be it speed, accessibility, longer battery life, etc.
Mobile revenues in Japan, Hong Kong and South Korea are not achieved through subscriber growth but by data usage and network expansion. All three countries are at the forefront when it comes to rolling out new networks and adopting new technologies. Japan, in particular, is renowned for using cutting-edge technologies. South Korea, on the other hand, leads in adopting new business models and innovation and has become a leader in CDMA technology.
Over recent years mobile subscriptions have risen steadily towards saturation in Malaysia and Singapore, while the likes of Cambodia, Laos and Vietnam are yet to reach such figures. In these countries growth is primarily driven by expansion into rural areas as networks extend beyond the major urban conurbations.
Although it is yet to have extensive penetration, 3G technology has been gaining in popularity as a number of operators in countries such as Vietnam and Thailand have begun to deploy 3G networks in order to supplement their non-voice revenues and profit from the wider range of service that faster network speeds facilitate.
Even in the current economic climate it is India and China where there is particular activity. India, in particular, has put long-term initiatives in place, which it continues to invest in. The Indian Telecom sector has developed dramatically, with the share of the private sector increasing to more than 66 percent and the contribution of mobile telephony going up to 80 percent, according to India’s department of Telecommunications (DoT). The country has the third largest telecom network and the second largest wireless network in the world, and the DoT has set a target of 500 million telephones and broadband connectivity to 20 million subscribers by the end of 2010.
In India the demand for the masses to ‘get connected’ has seen the growth of wireless telephony, which is affordable, accessible and has the capacity to service rural and remote communities. There are ongoing efforts to expand the country’s infrastructure to cover all of the districts and states in India where there is no existing fixed wireless or mobile coverage. A second phase is then proposed that will see the erection of additional towers to provide mobile services to cover the remaining remote areas. These activities are being supported through the Universal Service Obligation Fund (USOF), which was set up by the Indian government in order to provide people in rural and remote areas access to telecommunication services at affordable and reasonable prices.
The country is also set to enter the 3G arena with the DoT setting a deadline for the nation’s 3G auctions in early December 2009 with WiMAX and EVDO auctions commencing just a few days later. However, at the time of going to press, there is speculation that the December deadline will not be met and will be shifted into 2010. Having set floor prices of 35 billion rupees (approximately $725 M) for the 3G auction and 17.50 billion rupees (approximately $365 M) for the WiMAX auction, when the auctions do take place the government expects to reap at least 250 billion rupees (approximately $5200 B).
China is also in transition from 2G to 3G with the government awarding 3G licenses for CDMA 2000, WCDMA and TD-SCDMA to China Telecom, China Unicom and China Mobile, respectively. The Chinese government and the three operators are supporting LTE, with each operator’s implementation strategy being dictated by their present positions in the market and their currently adopted 3G technologies.
In terms of technology, WiMAX faces challenges, particularly from LTE, but at the current time the Asia-Pacific region represents good prospects for the technology in terms of subscriber uptake and the number of network deployments. There is particular potential in emerging markets as they try to bridge the digital divide.
Wi-Fi development in China is interesting and growing in three sectors. First, there is industrial implementation driven by the information-based nature of Chinese business. Secondly, the delays in awarding and implementing 3G licenses have seen Wi-Fi being adopted for home usage.
Third, and most significant, is the deployment of Wi-Fi City in many cities throughout China. As the name suggests, Wi-Fi City differs from Wi-Fi hotspots as it aims to provide seamless Wi-Fi connectivity city-wide, rather than in limited areas. It has been popular as it is often free to access. This was the case in many areas up to an including the Beijing Olympics in 2008, but whether that is a realistic business model that can be sustained indefinitely remains to be seen.
Worldwide there have been moves to increase the broadband connectivity. Asia is no exception and broadband Internet has become one of the fastest growing market segments in the region. As is to be expected, broadband has been led by the region’s developed economies such as South Korea, Japan, Taiwan, Singapore and Hong Kong. In developing countries dial-up narrowband access has been prevalent, but that is changing.
Semiconductors
Due to the economic crisis the global semiconductor market is expected to decline by 21.6 percent on an annualized basis to $194.8 B in 2009, according to the spring 2009 forecast of the World Semiconductor Trade Statistics (WSTS). These projections have been revised downwards by 20 percentage points compared to the forecast that WSTS issued in November 2008. Forecasts expect the bottom of the current cycle to have been reached during the first half of 2009 and for there to be positive growth beginning in the first quarter of 2010.
WSTS forecasts expect the Asia-Pacific semiconductor market to have fallen from $123,975 M in 2008 to $99,470 M—a decline of 19.8 percent. From then on there is expected to be year on year growth of 8.2 percent in 2010 and 9.5 percent in 2011. Such growth is expected to be sustained due to the dynamics of both the strong rise in domestic demand and the continued manufacturing shift to the region. However, although there is evidence of recovery for the semiconductor industry in the region, the recession has hit hard and growth is from a much lower base than the figures that have been the norm in recent years.
Electronics
Due to low costs of manufacture and developing local markets the Asia-Pacific region has established itself as a hotbed for the manufacture of electronic devices and products over the last decade or so. However, the economic slowdown in industrialized countries and rising inflation has reduced consumer demand and there are concerns regarding overcapacity that could threaten existing manufacturing outlets and curtail future expansion plans.
The reaching of saturation levels and declining margins has forced business models to come under review with the need for adaptability, collaborative design and partnering becoming increasingly important. In the past, many developing Asia-Pacific countries have benefited from Foreign Direct Investment, which is not only a source of capital but also aids the transfer of technology and the generation of new employment opportunities. In the current economic circumstances such funding is in short supply.
COMPANY SURVEYS
The Asian Perspective gives a flavour of the region’s current technological, industrial and economic climate. It is a general overview, so in order to gain an insight into how individual companies at the ‘coal face’ are faring under current market conditions, the author solicited the views of executives from companies located in China, Korea and Taiwan, which are given in the company surveys that follow.
China
Lanjian Electron Co. Ltd.
The company manufactures RF coaxial connectors and cable assemblies in strict conformance with China’s military standards, IEC standards, national standards and industry standards. The products are widely used in telecommunications, instrumentation and industrial applications. The company has developed more than 40 series of RF connectors, including SMA, SMB, SMC, SSMB, BMA, MCX, MMCX, BNC, TNC, 1.0/2.3, 1.6/5.6, N, 7/16, C 5.0, MT test connectors, mm-wave connectors and connectors manufactured and designed for specific customer applications.
Lanjian Electron Co. Ltd. believes that in order to develop products to meet the rapidly changing telecommunication, defence and broadcasting sectors it must keep up to date and efficient. Therefore, the company employs professional teams to support factory operations with regards to both management and technology and uses advanced production processes, while updated manufacturing and test equipment help to ensure the quality and quantity of products. For instance, the company has over 100 CNC machines, network analyzers, VSWR test equipment, EDX RF spectroscopic analyzers for RoHS, a microwave anechoic chamber and more.
Obtaining industrial standards is also important and Lanjian Electron Co. Ltd. holds: ISO 9002-1994, ISO9001-2001, ISO14000, GJB9001A-2001, and is also a communications member of SAC/TC 190.
Although located in Zhenjiang, in the south east of the Peoples Republic of China, the company’s customers are dispersed across the globe with North America, Europe and Asia all being addressed. However, most of the company’s customers are located in North America and Europe. It has adopted a direct sales strategy. In China, the company has set up branches in Beijing, Shanghai, Shenzhen and Hefei and in order to serve and develop the market in North America, a wholly owned subsidiary has been established in Houston, TX(US). The aim is to establish strong business relationships with customers and build up a strong and stable supply chain directly with the customer and avoid using sales agencies and brokers as middle men.
In general, the company believes Asian manufacturers offer more choices for the customer and intense competition together with quick growth and development, flexibility, competitive pricing, innovation, the possibility of cooperation between companies, etc. Lanjian Electron Co. Ltd has witnessed a reduction in market demand due to the economic downturn, but the situation has given the company the time and opportunity to focus on production and to develop future strategies. In addition, the cost of development is much lower than before. The company believes that the steps it has taken will push the business to the next level.
With regards to technological development the company envisages efforts towards: the move towards higher frequencies, the development and use of different materials; and connector designs that make them more efficient at a lower cost. It also sees the development of RF related technologies stimulating growth, particularly the expanding usage of 3G or 4G technology, the updating of defence systems, and the improvement and expansion of HD.
Korea
RFHIC Corp.
2009 marks the RFHIC Corp.’s 10th year in the RF industry and during that relatively short period the company has grown to be an active player in the global market for wireless telecommunications, broadcasting and radar components and modules. Major areas of business include components for FTTH, base stations, repeaters, cable networks, LTE, WiMAX, UMTS, digital TV, radar, medical, military and test equipment.
Technologically, since 2004, RFHIC has focused on bringing Gallium Nitride technology to the commercial market. With increased requirements for broadband communication to provide faster data rates and higher efficiency, the company believes GaN technology is here to stay and is working with key foundry partners to move the technology towards a lower cost commercial application in order to enhance market acceptance.
RFHIC is currently working with five different foundry partners each focusing on different semiconductor process technology. With ISO9001 certified manufacturing and production facilities, providing reliable and dependable solutions is a key aim. Also, being a ‘one-stop facility’ solution provider, the company is capable of processing MMICs, die attach, wire bonding, packaging, chip on board, hybrid, SMT line, RF test line, and quality control in all its facilities. This provides customers with very fast delivery, high quality control, high reliability, cost-cutting technology, and fast support on engineering sample designs. All of the products are developed internally.
As the number one active component manufacturer in Korea and with expanding customer support worldwide, RFHIC currently supplies component communication equipment to over 1,000 customers in more than 45 countries.
Kevin Kim, RFHIC’s Senior international sales manager, explained, “Although each individual geographical market has a different focus, the general distinctions per industry markets are not huge. For instance, in North American markets the focus is more on CATV markets than other geographical markets, but wherever in the world there is a need for CATV hybrid amplifiers similar industry standards apply. China has a high appetite for FTTH products, but the same specifications are true for US FTTH markets.”
Moving on to the strengths of Asian manufacturing he continued, “With the cost pressures hardening in all industries, the biggest advantage to using Asian manufacturers would be the added cost savings. Historically, customers had to choose between cost versus quality, but having gained experience Asian manufacturers now provide both low cost and great quality products. A point illustrated by RFHIC gaining contracts to supply world-class customers such as Hitachi and Mitsubishi following thorough audits.”
With regards to the downturn in the global economy Kim explained, “Korea has been the fastest country in the world to recover from the recent depression, with the Wall Street Journal, Reuters & Bloomberg all reporting this to be the case in the third quarter of 2009. This is not to say we weren’t affected at all, since our major customers worldwide did get hurt, but due to the fast turnaround, RFHIC is feeling the effects less than most.
“Also, as a company we are working hard to increase productivity and achieve higher efficiency in all aspects of our business. Customer Relationship Management has become an increasingly important factor to our business operations and advertising and other marketing related activities have to warrant real return on investments before they are initiated.”
With regards to technological development activity RFHIC sees the ‘Green Economy’ being important with every sector needing to embrace the green concept and higher efficiency being of key importance to the RF and microwave industry. It also sees wider bandwidth coverage technology as another key area since that technology can consolidate current product variations to one multi-octave system.
As for the future, RFHIC believes GaN technology will continue to be a major growth area for development. Kim stated, “It is only in its second generation and has far more potential in the future. Convergence of digital and analogue technology will be another area where we will see much more new technology being researched and developed.”
Taiwan
Bo-Jiang Technology Co. Ltd.
The enterprise’s products are also marketed under the names Zifor Enterprise and Frontlynk Technologies Inc., which is a new company aimed at the high-end market. As a whole, Bo-Jiang Technology has been devoted to the development and production of RF/microwave coaxial connectors since its inception more than 10 years ago. Its basic aim with these connectors has been to reduce losses and improve data transmission and enable customers to adopt the connectors simply and efficiently.
From the beginning, the company adopted a strategy of continued training and cooperation with academia in order to advance the capabilities of its employees and develop in-house expertise in R&D, etc. At present the emphasis is on developing high frequency, high power precision connectors for the high-end market.
Initially the company concentrated on the home market in Taiwan but has successfully extended its reach to the worldwide market in recent years. The company recognises that Asian manufacturers have a reputation for mass production at low prices, but believes that Taiwanese suppliers can also fulfil the requirements for higher quality and shorter lead times at a reasonable price.
Commenting on the economic downturn a company spokesman stated, “There is no doubt the Financial Tsunami has led to fewer orders as our customers have felt the impact of their end customers reducing demand. However, we believe that the situation has resulted in closer relationships with our customers and we now cooperate more closely with each other to develop new products with shorter lead times.”
The market situation has also prompted the company’s emphasis on developing higher frequency, high power, miniaturised products for new markets, particularly the wireless telecommunication industry. To do so and looking to the future, the company is developing its manufacturing facilities to support the manufacture of these precision connectors.
CONCLUSION
There is no doubt that Asia, where growth, expansion and economic prosperity have been taken for granted in recent years, has faced a reality check following the economic downturn. A great deal of the region’s prosperity has come from its capability for mass manufacture at low cost. Significantly, a serious consequence of the economic slowdown has been a check on consumerism, which as this report highlighted, has impacted on the electronics and semiconductor markets especially.
A danger for the Asia-Pacific region is that this contraction in demand could lead to excess manufacturing capacity and inventories. Emerging countries have also come to depend on foreign investment to stimulate competitiveness, raise productivity and generate new employment opportunities. Capital investment for financial institutions, which once flowed freely, is now harder to come by.
That said, it is not all doom and gloom. Asian countries such as Japan and Korea have tended to be less affected by the downturn than their counterparts in Western Europe and North America and are on their way to recovery. Nations led by India and China are continuing to grow with the implementation of long-term projects. At such times RF and microwave technology can play a vital role by providing the products, infrastructure and services to sustain growth, with 3G technology, LTE, WiMAX and Wi-Fi implementation being significant drivers.
The boom years may be history, but the indicators are that they may be replaced by considered growth. As the company surveys illustrated, Asian companies are facing up to the fact that they should take action to increase productivity, achieve greater efficiency, communicate closely with their customers, forge competitive alliances and develop considered future strategies.
