Can Taiwan leverage its hardware manufacturing acumen to tap opportunities in the ascendant big-data analytics market?
The digitization of information since the advent of the personal computer has led to a massive accumulation of data, and that data buildup has accelerated with the development of high-speed Internet connections and connected mobile devices.
Unlike data found in a traditional row-column database, much of the information prevalent in the digital age is unstructured. These unstructured data files often include both text and multimedia content. Some examples include word-processing documents, e-mails, photos, audio files, and webpages.
“Content in a database is structured in that you know what each field means,” Patrick Fu, chief executive officer of Gemini OpenCloud, a Hsinchu-based cloud-computing solutions firm, told Taiwan Business TOPICS in an interview. Mining that data is thus relatively straightforward.
By contrast, because of irregularities in unstructured data, mining the data with traditional methods is costly and difficult. New technologies are needed. For instance, raw data with extended metadata (data that describes other data) is aggregated in a data lake – a large storage repository and processing engine. Artificial intelligence programs and machine learning use sophisticated algorithms to locate repeatable patterns.
The tech industry buzzword “big data” refers to large aggregate data sets – structured, semi-structured, and unstructured – that can be mined for information. Research firm International Data Corp. (IDC) estimates that 90% of big data is unstructured. “There is so much new information resulting from digitization” that big-data analytics is becoming big business, says Fu. “This information can be analyzed for insights. It represents opportunity.”
Last November IDC forecast that the global big-data technology and services market would grow at a compound annual growth rate (CAGR) of 23.1% between 2014 and 2019, with annual spending reaching US$48.6 billion in 2019.
IDC expects the three primary big-data submarkets – infrastructure, software, and services – to grow substantially in the 2014-2019 period. Infrastructure, including computing, networking, storage infrastructure, and other datacenter infrastructure, is expected to expand at a CAGR of 21.7%. Software, which includes information management, discovery and analytics, and applications software, is projected to increase by 26.2%. Finally, the services submarket – which consists of professional and support services for infrastructure and software – is forecast to grow at a 22.7% clip.
Strength in storage
Among the big-data submarkets, Taiwan is strongest in infrastructure – servers in particular. Server clusters are needed to support the tools that process the large volumes and different formats of big data. Taiwanese OEMs are highly competitive in the server manufacturing market, notes Pei-fen Hsieh, a server analyst at the government-backed Market Intelligence & Consulting Institute (MIC). “Brands always go to Taiwanese firms when they need server systems,” she says. “Leading brands such as Google and Amazon like the ability of Taiwanese OEMs to produce tailor-made server systems and are now bypassing HP and Dell in favor of Taiwanese firms.”
In an October 2015 report, Taipei-based research firm DigiTimes forecast that Taiwan’s revenues for server motherboards, servers, storage devices and related network equipment would rise 4.7% year-on-year in 2015 to reach NT$494.3 billion (US$14.8 billion).
Globally, three Taiwanese companies – Hon Hai Precision Industry (Foxconn), Inventec, and Quanta Computer – are the top three server manufacturers. Each earns annual revenue of more than NT$100 billion (US$3 billion) from servers and related product lines, according to DigiTimes.
A major advantage for Taiwan’s server manufacturers is low pricing. For instance, market observers say Quanta’s servers range from US$500 to $600 per unit, nearly half what HP and other big-brand hardware costs.
With its expertise in materials selection and parts procurement, Quanta has been able to reduce production costs, offering a no-frills but effective server. The success of Quanta’s server products helped the company’s consolidated revenue increase 8.74% year-on-year in 2015 to NT$1 trillion (US$30 billion).
Some analysts are optimistic about Quanta’s near-term prospects. In a November 2015 research note, Daiwa Capital Markets analysts Steven Tseng and Jack Lin highlighted Quanta’s growing client coverage, which has expanded from public cloud giants Microsoft and Amazon to ascendant Internet companies such as Uber and Dropbox.
Hsieh, however, is not convinced. Quanta’s server business could well face headwinds as more Taiwanese firms enter the server sector as contract manufacturers, she says, noting that “growing price competition will affect Quanta’s profitability from servers.”
Reaching for the clouds
Taiwanese companies are gradually expanding into the software and services segments of big-data analytics, notably comprehensive cloud-computing solutions. Cloud computing offers businesses an affordable way to support big-data technologies and advanced analytics applications, experts say.
Some observers see a move into cloud-computing solutions as a natural segue for Taiwanese companies, who are known for their capability in making server hardware. In addition to providing cloud-based storage, Taiwanese firms can offer download application programs that enable cross-device data access, they say.
Twenty-five different Taiwanese cloud-services companies will receive government support as part of the System Integration Promotion Alliance (SIPA) initiative launched last October. Cloud computing is included as one of 10 strategic sectors to be exported as turnkey solutions under the scheme.
Some Taiwanese hardware makers see cloud computing as a way to recalibrate their ailing businesses. Foremost among them is troubled PC manufacturer Acer. The company suffered its worst fourth-quarter sales in a decade in the October-December 2015 period, as revenue plunged almost 21% to NT$68 billion (US$2.04 billion). On an annual basis, Acer’s revenue fell more than 20% last year to NT$263.48 billion (US$7.9 billion million), from NT$329.8 billion (US$9.8 billion) in 2014.
Acer hopes to revitalize itself by transforming into a provider of cloud-computing solutions to the global market. The company is using the southwestern Chinese municipality of Chongqing, where it has made notebook computers since 2011, as a test market for its cloud services, analysts say. Acer built a US$4-million cloud-computing center, which was launched last October, in the city’s aptly named Xiantao Big Data Valley.
Acer’s push into cloud computing “is a right step,” but the PC maker is likely to face plenty of competition, says Helen Chiang, associate research director of IDC in Taiwan.
MIC’s Hsieh reckons Acer may struggle in the business-to-business market as its enterprise solutions and cloud-based services “still lag behind established players considerably” while the company lacks a stable enterprise customer base. “We think Lenovo stands a higher chance of success in this field, owing to massive Chinese market demand and its acquisition of IBM’s server business, which brought Lenovo a good enterprise customer base that trusts IBM’s products,” she says. “Acer is going to have to count heavily on demand from emerging markets as it has a slimmer chance of expanding its presence in developed countries.”
Acer’s woes are a part of a wider problem Taiwan’s hardware makers face as they foray into the unfamiliar world of big-data analytics. Yet Fu of Gemini OpenCloud remains sanguine. He acknowledges Taiwan is best known for its hardware prowess, but he sees that reputation as an advantage for Taiwanese companies.
“It makes sense for Taiwan to leverage its hardware strengths – and it has the R&D ability to develop strong capabilities in big-data analytics,” he says, noting the research on big data being conducted by the government-backed Industrial Technology Research Institute (ITRI) and Institute for Information Industry (III). Those efforts are part of a four-year NT$1.2 billion (US$36 million) project launched by the Ministry of Economic Affairs in January 2015.
“This is not a leap for Taiwan’s tech industry,” says Fu. “It’s an evolution.”