Circuits Assembly Online Magazine - DSC Market Competition Escalates in Taiwan

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TAIPEI -- Recent aggressive moves by EMS providers, including Flextronics and Hon Hai, will step up competition in the digital still camera (DSC) manufacturing industry. Taiwanese contract makers are expected to come under more pressure, market watchers told the Taipei Times.

"Manufacturing digital cameras is a growing industry with higher margins, and EMS players want to have a share," said Ken Yu, an analyst with SinoPac Securities Corp.

Worldwide DSC shipments are forecast to hit 95.3 million units this year and 102.3 million next year, up from 87.4 million last year, with momentum in the Asia-Pacific region and emerging markets, according to Taipei-based Market Intelligence Center.

Margins for DSC production can easily exceed 10%, compared with 5 to 6% for computer production, Yu said.

Last week, Singapore-based Flextronics announced that it would acquire Eastman Kodak Co's DSC manufacturing division and development center for $35 million.

Kodak will continue marketing digital cameras under its own brand but production will be outsourced to Flextronics.

Flextronics' move comes on the heels of an announcement by rival Hon Hai Precision Industry Co, which said in June that it would acquire Taiwan's top DSC maker Premier Image Technology Corp. through a share swap.

"We believe it is structurally negative to DSC manufacturers because competition will intensify with the entrance of Flextronics, which previously produced small volumes of digital cameras for Casio Computer Co," Macquarie Equities told the Taipai Times.

Given their strong manufacturing background, cost leadership and scale, the world's top two EMS firms will likely boost rivalry among DSC manufacturers like Sanyo Electric Co, Asia Optical Co, Ability Enterprise Co., Altek Corp. and add to the decline in margins, Macquarie said.

Premier Image, Asia Optical, Ability and Altek are the nation's first-tier DSC contract makers.
Flextronics' move should be particularly negative to Kodak's current suppliers, such as Altek and Asia Optical, over the long term, Macquarie noted. Kodak's orders account for more than 50% of Altek's DSC shipments, and 10 to 20% of Asia Optical's.

Nevertheless, Yu added that "Compared with EMS players, manufacturers such as Asia Optical have mastered technologies for producing camera chips and optical camera lenses, and they also have advantages in camera design.”

These manufacturers have good long-term relationships with major Japanese clients such as Casio, Sony Corp, Canon Inc and Nikon Corp, and this is an area where EMS firms might need some time to catch up, Yu said.