Taiwan’s networking industry marches into smart home

In Taiwan, there are around 50 networks and communications companies, of which 90 percent of those supply smart home products. Most of them are large-sized public-listed companies with sales revenue over tens of millions of US dollars. To date, the majority of networking companies _ around 30 to 40 companies _ conduct OEM, ODM and EMS services for leading global brands like Netgear and Nest, and for operators like AT&T, Deutsch Telekom, and Comcast directly or through system integrators. Gemtek, Alpha Networks, Pegatron, Arcadyan, Sercomm, CyberTAN, Inventec Appliances (IAC), Pegatron, Mitrastar, Zinwell, Senao Networks, Wistron NeWeb (WNC), Askey, SMC Networks and Planet are the well-knowns. Famous for ICT sub-manufacturing services, they are competitive in economies of production scale, along with efficient and cost-effective manufacturing capability. In the smart home market, they pursue profitable operation by offering integrated solutions that include hardware, software and cloud platform. The cloud service adds value and product differentiation.

Background and business models

The networks and communications companies in Taiwan are specialized in hardware and software services of satellite, fiber optic, wireless networking, and telecommunication fields. Those companies offer wired and wireless solutions, including set-top boxes, mobile phones, routers, IADs, home gateways, base stations and IP telephone systems to telcos, MSOs and ISPs. With these carriers stepping into the smart home, smart home products are natural extensions for Taiwan makers. They offer smart home products like smart gateways, set-top boxes and network cameras to help their customers to generate new revenue stream from monthly service fees for home security and automation.

There are also companies whose core business is related to power solutions like Billion Electric and Tatung have both communication and energy business units. They leverage their power measurement capability to release smart energy solutions, including wireless modules embedded in the power meters, energy-related devices and cloud services for energy management.

The other type of suppliers like Pegatron and Qisda provides computer and peripheral manufacture, offering EMS and OEM services based on volume production. They are competitive in vertical integration, cost reduction and economies of scale.

The business models include contract manufacturing services and own-brand business. The leading Taiwan brand companies include D-Link, Zyxel and Metalligence who outsource production to their subsidiaries or mother companies. The companies who promote own-brand like Metalligence, Loopcomm are more optimistic toward the market. Take Loopcomm for example, smart home product lines, including home gateways and IP cameras accounted for 5 percent of its sales revenue in 2014. The company plans to launch its own-brand Wi-Fi home kit that consists of a gateway, IP cameras, power strips and plugs, and LED bulbs in H2 2015. The company predicts that its own-brand home kit would contribute to around 50 percent of their sales revenue in two years. Metalligence, who offers cloud service and ZigBee smart home products, said the smart home products to account for 50 percent of its sales revenue in 2014, and the ratio is forecasted to grow to 70 percent in 2015. Tecom, who sees 25 percent of its sales revenue generated from the smart home business, predicts 20 to 30 percent growth in 2015.

For most OEM/ODM companies, smart home products currently account for less than 10 percent of their sales revenue. They are testing the water by offering just few a product lines based on sub-contract manufacturing cases at present. They believe the smart home provides a new business opportunity to boost their sales revenue and profits by launching new products.

Tactics in smart home

In a bid to spur demand, many telcos, MSOs and retailers have been lowering down prices of home gateways and smart home kits to boost market penetration. To stay ahead of the game, the makers provide competitive prices and fast delivery to global buyers.

Generally, Taiwan networks and communications companies head two opposite paths to conquer the smart home market. One is low-profit but mass-produced to achieve overall cost leadership, which are facing direct competition from neighboring countries such as China, Vietnam and so on. The second path is believed to be the future of Taiwans smart home industry _ offering high tailor-made and niche products to gain more profits and pursue the differentiation in the competition.

From the standpoint of supply, they can handle engineering, ID design, manufacturing assembly, testing processes and after-services. Vertical integration capabilities enable companies to reduce transaction cost and delivery time. The monthly production capacity reaches from 100,000 units to 1 million units. The major manufacturing locations are in Northern Taiwan and Chinas Jiansu and Guangdong provinces. Overall speaking, they have more than 20 years of contract manufacturing experiences to shorten learning curves as well as delivery time. Customers are benefitted from overall project savings.

Besides cost leadership, they adopt product diversity strategy like package solution to increase customer utility plus makers profits. Offering one-stop shopping service is the way to enhance customer loyalty in the long run. In terms of product mix strategy, they prefer to ship packaged solutions of hardware devices or total solutions instead of supplying standalone products so as to enhance sales revenue. The total solutions comprise of hardware, sometimes a kit, software and cloud services in general. The package set contains a gateway and connected devices like network cameras, smart plugs and sensors to customers in addition to software and cloud services. Companies like SMC, D-Link, and Senao Networks offer a set of network switches or gateways with IP cameras. Besides, the makers are able to offer basic cloud services by setting up storage, SSLVPN, PNS (Push Notification Server) and BMS (Backend Management System) servers. For own-brand companies, they sell standalone DIY products and kits to distributors and channels.

For example, WNC utilizes its wireless technology and system integration experiences to offer home automation solutions for lighting control, motion detection and wireless charging. Seeing the growing trend of energy management, the company offers smart meter communication boards and hubs for smart grid applications along with software stack customization.

Sercomm, whose 20 percent of sales revenue is generated from smart home product lines, offers security surveillance, home automation, parent monitoring, remote healthcare and energy management solutions in addition to cloud services. ASUSTeK, the global leading computer supplier, plans to release its own-brand ASUS AiCam in Q1 2015 bundled with its home cloud platform. The camera can be used for baby monitoring, featuring two-way communication and playback of lullabies.

Tatungs smart home gateways, available with module or finished product called Gateway One connect lights, security cameras, smart plugs, multi-sensors and EVs with its cloud platform. Its multi-sensors can detect changes of temperature, pressure and motion, supporting ZigBee or Z-Wav. Besides, it features built-in HomePlug AV/Green PHY to enable connectivity with smart meters. Gateway One can be used for home surveillance and monitoring, energy monitoring and control, and home automation like smart HVAC control. Their customers include system integrators, distributors or utility firms.

As increased competition and aggressive pricing strategies continue to reduce profitability for hardware manufacturers, Kevin Yang, Executive Board of Director of Gemtek believes offering total solutions that integrate hardware, software and cloud services will help them stay competitive in an increasingly crowded market. Gemtek is working on backend custom cloud services to traditional lock and home automation companies who would like to establish value-added business models and increase recurring revenue.

Jeffrey Liu, Director of Strategic Business Unit IV of AboCom said integrated solutions in the smart home offer value and profits to both customers and solution providers. When asked about how the company will cope with the price competition from suppliers in China, Liu thinks staying ahead of the game is crucials.

Wesley Huang, Managing Director of Tecom indicated that home security becomes a must-have for smart home, and home automation is a nice-to-have add on application. As a leading ehome system provider and gateway manufacturer, the company builds its own clouds to offer both software and hardware services to maintain competitiveness.

Gateway leads the way

Smart home gateway, Wi-Fi smart plug/power strip, IP camera and smart LED bulb are the four key products supplied by networks and communications companies in the smart home. The smart home gateway is the major product line to Taiwan makers due to its greater profits. Also, the market is promising. According to GSMA, the production value of value-added home gateways is predicted to reach $44 billion in 2016.Jeffrey Liu, Director of Strategic Business Unit IV, says the home gateway provides a higher level of product differentiation due to its complexity in firmware architecture as well as wireless integration technologies.

The smart plugs offered by Taiwan makers are embedded with smart metering function to measure power voltage and current, collect and transmit usage data, and send back to the cloud server for data analysis. About the alarm and safety sensors, the communications companies prefer to offer proprietary wireless systems based on ZigBee, Z-Wave or sub-G RF standards, or to cooperate with manufacturing partners like Climax and Goodway who are dedicated to this field. Those Wi-Fi experts are not in favor of implementing Wi-Fi standards into alarm sensors due to their high power consumption unless they can last at least one year without changing batteries.

As the smart home involves many different areas of expertise, most companies cannot make all the smart devices alone. We are open to partnerships with other companies in the smart home market as well as cooperation with cloud-based service providersî, said Jason Liao, Deputy Manager of the Product Management Department in the Power & Energy Management Division of Billion Electric.

In 2015, C.J. Chen, General Manager of Metalligence believes that home IP cameras and environmental sensors like gas, CO and CO2 detectors are two promising product lines because of market demands and improved technologies. The IP security cameras that incorporate basic video analysis function help increase value and demands to products. Chen added that data analysis via cloud service can be a major driver to boost the market over the next two years.

The other two professionals, Askey and Arcadyan offer smart home solutions based on ULE standard which is new to the market and based on DECT technology. DECT is a popular wireless telecommunication standard in Europe. Askey, whose major export market is located in Europe, indicated that ULE is a reserved spectrum, featuring power saving and low unit cost. Arthur Li, Senior Director of Marketing Division of Sales Group of Askey said that ULE using a star topology as BLE will be a popular adoption for wearable devices or ones require one-to-many connections.

The better future

Without a trace of doubt, networking vendors in Taiwan regard the smart home as a promising area with notable growth in the coming years. Faced with stiff competition from neighboring countries, Taiwans networking makers are striving to transform themselves from pure hardware OEM/ODM suppliers to cloud technology service and total solution providers of the connected home.