20161228 IPC產業

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Industry PC 2016.12.13

Taiwan: IPC

Industry 4.0 Trend is Booming the IPC Industry

Analysis and Comments Research Analyst

Jesse Kuo

[email protected]

Conclusion

Small-volume and large-

variety orders causes high

gross margin.

Stable downstream customer

makes small competition.

The trend of industry 4.0

would rise the demand of IPC.

We have a positive view of the IPC industry. There are three following reasons:

The characteristic of IPC industry is customized and small-volume large-variety orders, so most PC manufactures didn’t enter the IPC market. As its products are tailor-made for clients in different industries, IPC companies can earn higher gross margin, such as 20%~40%.

The products of IPC company may involve the customers’ important information, such as security, confidentiality and business model, so the customers would not pursue the best performance, and seldom change the supplier, which cause less competition.

Since Germany proposed industry 4.0, countries have followed suit, and Industrial PC is one of the main component in industrial 4.0. According to the expectation of Markets and Markets, the market scale of IoT components will grow the US$297,730 million in 2019, and the CAGR will be 33.9% between 2014 and 2019.

Exhibit 1: Global Market of IPC

Related Company:

Advantech

Axiomtek

ADLink

Ennoconn

IBase

(2395 TT)…………………………..P.12

(3088 TT)…………………………..P.13

(6166 TT)…………………………..P.14

(6414 TT)…………………………..P.15

(8050 TT)…………………………..P.14 Source: IHS

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2013 2015 2017(F) 2019(F)

million US$

mailto:[email protected]

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Basic Introduction

Different with the high homogeneity of PC, most IPC company

have to satisfy customers’ special requirement, such as

customized functional specifications, design and services.

Therefore, the design and testing of new products may take one

or two years. In addition, the solution may involve the customers’

important information, such as security, confidentiality and

business model, so the customers would not pursue the best

performance, and seldom change the supplier. Once the supplier

can satisfy customers’ request, the supplier could continue

deliver the products stably, and the period may be 5 year or even

more. As its products are tailor-made for clients in different

industries, IPC companies can earn higher gross margin, such

as 20%~40%. However, in order to deliver the products stably,

IPC companies have to prepare lots of inventory, and may even

cause overstocked. Because IPC must links and controls the

peripherals systems, compatibility and scalability are necessary

for IPC. Besides, the application environment may be extreme

temperature, humidity, long-term vibration, outdoor and other

conditions, so IPC should also be stable and reliable.

IPC products usually related to

customers’ corporate secretes, so the

supplier could continue deliver the

products stably. In addition, IPC products

are tailor-made. Thus, IPC companies

can earn higher gross margin.

Exhibit 2: Gross Margin of IPC Companies

Source: TEJ

0

5

10

15

20

25

30

35

40

45

50

2011/12/1 2012/12/1 2013/12/1 2014/12/1 2015/12/1

2395 TT (Advantech)

3088 TT (Axiomtek)

6166 TT (ADLink )

6414 TT (Ennoconn)

8050 TT (IBase)

(%)

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Industry Characteristics

Small Intra-industry Competition and High Gross Margin

IPC is designed to meet the strict requirements of industrial

automation, such as temperature, humidity, dust-proof, fault-

tolerant, pressure, continuous power supply system and so on.

In order to link many kinds of computer accessories and to fit

various operating environment, IPC must be customized

according to customer demand and customer orders are small-

volume large-variety, which is different with the mass production

of PC. In consideration of the economic scale, most PC

manufactures didn’t enter the IPC market. Therefore, IPC

manufactures could maintain flexible and customized production,

and keep high gross margin.

Small-volume and Large-variety Orders, Large Fluctuations in Revenue and Stable Chips

The characteristic of IPC industry is customized and small-

volume large-variety orders, so most PC manufactures didn’t

enter the IPC market. Besides, IPC industries’ orders are open

bid, so domestic IPC manufactures usually ship their products

concentrated within six months, and this would cause larger

fluctuations in revenue. Domestic IPC companies’ share capital

are usually 500~700 million, and the chips are stable.

IPC must be customized according to

customer demand and customer orders

are small-volume large-variety, which is

different with the mass production of PC.

Therefore, IPC manufactures could keep

high gross margin.

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Table 1: Difference between Industrial PC and Consumer/Commercial PC

Difference Industrial PC Consumer/Commercial PC

Market Scale Smaller market scale Larger market scale

Price Sensitivity Lower price sensitivity Higher price sensitivity

Operating Environment Often in extreme operating

environment

Often in stable operating

environment

Product Lifecycle Longer lifecycle Shorter lifecycle

Design Patterns Mostly customized Mostly standardized

Product Applications Non-commercial and special field Home and office

Purchasing Decision Quality, stability, durability price–performance ratio

Switching Cost Higher switching cost Lower switching cost

Ordering Mode Small-volume Large-variety Large-volume Small-variety

Service Quality

Higher service quality requirements,

and often communicating with

customers

Standardized product after-sales

service

Customer Retention Higher customer retention Lower customer retention

5


Product Categories

In general, IPC products can be divided to 3 categories, board,

subsystems and solutions.

Board Board includes single-board computer, embedded computer and

some other products. A single-board computer is a motherboard

which already has all the feature of a computer, and it can link

different peripherals and a variety of professional software.

However, the size of single-board computer would be smaller

than the size of the motherboard used in PC. Embedded

computer can make IPC link more machines, so the size would

be smaller.

Subsystems Subsystem means a product that combine single-board

computer, chassis, power suppliers and other peripheral systems

in a workable system, such as industrial servers and

workstations.

Solutions Solution is an entire system focusing on specific field, including

the necessary hardware, software and related peripheral

systems.

IPC products can be divided to 3

categories: 1. board, 2. subsystems and

3. solutions.

Exhibit 3: Industrial Computer Categories

Source: stockfeel

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Upstream& Downstream Companies

The supply chain of IPC industry can be divided into upstream,

midstream and downstream industries. Except for chassis and

some storage devices, most upstream industries are the same

as the upstream industries of PC, such as semiconductor, printed

circuit board, CPU, chip, hard disk drive, power supplier and

other components. In addition, some supplier would establish

special departments in order to meet the needs of IPC. The

midstream industries are generally means IPC industries, and

the products contain input/output devices, single-board

computers, barebone computer products, industrial computer

products and computer peripheral products. Finally, the

downstream industries are System-Provider, dealers and end

users. Because most terminal customers are companies and the

applications of IPC are usually professional, the quality

requirements of IPC are also higher. If exporting to foreign

countries, manufactures have to face different habits, and usually

entrust to local dealers in order to master demands. Besides,

some dealers would increase some software of hardware, and

then sell the value-added products to the system-providers or the

terminal customers.

Most upstream industries are the same as

the upstream industries of PC. The

midstream industries are generally

means IPC industr ies. Final ly, the

downstream industries are System-

Provider, dealers and end users .

Exhibit 4: IPC Industry Chain

Source: MIC

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Future Perspectives - Industry 4.0

Industry 4.0 creates what has been called a "smart factory". In

the smart factories, cyber-physical systems monitor physical

processes, create a virtual copy of the physical world and make

decentralized decisions. Over the IoT, cyber-physical systems

communicate and cooperate with each other and with humans in

real time. By the Internet of Services, both internal and cross-

organizational services are offered and used by participants of

the value chain.

Four Design Principles in Industry 4.0 These principles support companies in identifying and

implementing Industry 4.0 scenarios.

Interoperability The ability of machines, devices, sensors, and people to connect

and communicate with each other by the Internet of Things (IoT).

Information Transparency The ability of information systems to create a virtual copy of the

physical world by enriching digital plant models with sensor data.

Technical Assistance First, the ability of assistance systems to support humans by

aggregating and visualizing information comprehensibly for

making informed decisions and solving urgent problems on short

notice. Second, the ability of cyber physical systems to physically

support humans by conducting a range of tasks that are

unpleasant, too exhausting, or unsafe for human workers.

Decentralized Decisions The ability of cyber physical systems to make decisions on their

own and to perform their tasks as autonomously as possible.

Following four principles support

companies in identifying and

implementing Industry 4.0 scenarios:

interoperability, information transparency,

technical assistance and decentralized

decisions.

Exhibit 5: The Industrial Revolution

Source: wikipedia

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Three Aspects form The Heart of Industry 4.0

Integrated Industrial Chain Because a company can combine every function and link the

entire hierarchy by IoT, it can vertically integrate the industrial

chain. Besides, a company can also link the suppliers, partners,

and distributors in the value chain and transfer data among them

seamlessly, and integrate the industrial chain horizontally.

Full Automatic Processing The products and services to be embedded with custom-

designed software, so that they become responsive and

interactive, tracking their own activity and its results, along with

the activity of other products around them. When captured and

analyzed, the data generated by these products and services

indicates how well they are functioning and how they are used.

Zero Inventory Closer interaction with customers, enabled by these new

processes, products, and services. Industry 4.0 makes the value

chain more responsive, allowing industrial manufacturers to

reach end customers more directly and tailor their business

models accordingly.

Industry 4.0 would cause integrated

industrial chain, full automatic

processing and zero inventory.

Exhibit 6: Integration Topology for Industry 4.0

Source: WNIPT

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Industrial Policy of Each Countries

In 2011, Germany proposed the concept of industry 4.0 at

Hannover Messe, the biggest industrial exposition. In addition,

major industrial countries also promote manufacturing-upgrading

policy in order to enhance national competition. Industry 4.0

intelligent manufacturing has become the major topic of

exhibition in recent years, and the core concept of Hannover

Messe in 2016 is it, too.

Since Germany Proposed Industry 4.0, Countries have Followed Suit

Korea Korea proposed “Strategy for Manufacturing Industry's

Innovation 3.0” in June 2014 to encourage the transformation

and development of Korean manufacturing industry. Korea

government expects to invest about US$1 billion to help 10,000

small and medium-sized manufacturing company establishing

intelligent and optimized production processes.

The United States The United States proposed “AMP 2.0” in October 2014 to

strengthen the U.S. industry competitiveness by promoting

innovation, protecting the pipeline of human resources and

improve the business environment.

China China announced “Made in China 2025” in May 2015. The

government expect to become a manufacturing power within 10

years. The strategies include developing IT industries, high-tech

robot and machine tools, promoting the integration of information

technology and industrialization, and establishing manufacturing

industry innovation center.

Japan Japan announced “FY 2015 the white paper on manufacturing

industry” in June 2015. It said that Japanese industries need to

develop the application of IoT and big data.

Germany proposed the concept of

industry 4.0 at Hannover Messe. Then,

Major industrial countries also promote

manufacturing-upgrading policy related to

industry 4.0.

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IoT: The Next Motivation of IPC Industry

According to the “Markets and Markets”, the market scale of IoT components in 2012 is US$41.38

billion, and the components contain RFID, network communication, data processing, security,

preservation, related support and other technology components. In 2013, it grew to US$52.28 billion,

and the growth rate was 26.3%. In 2014, it grew to US$68.4 billion, and the growth rate also grew to

30.8%. According to the expectation of Markets and Markets, the market scale of IoT components will

grow the US$297.73 billion in 2019, and the CAGR will be 33.9% between 2014 and 2019.

Exhibit 7: Market Scale of Global IoT Component

Source: Markets and markets

Global Corporate Capex Continues Growing

Divided by the terminal application, more than 50%

IPC productions are used in industrial applications,

so the business and the capital expenditure are

closely related. Semiconductor industry is related to

most 3C products, and it also requires industrial PC

to control the production equipment, so we take the

semiconductor industry's capex as a reference.

According the data from Gartner, global capex in

both 2015 and 2016 is declined, but Gartner also

expect that the global capex will continue growing

in the future.

Exhibit 8: Growth Rate of Global Semiconductor

Industries’ Capex during 2015~2018

Source: Gartner

0

50

100

150

200

250

300

RFID NetworkCommunication

Data Processing Security & Defense Total

2012 2013 2014 2019(F)

billion US$

CAGR = 29.9% CAGR = 36.4% CAGR = 34.6% CAGR = 35.8%

CAGR = 33.9%

-2

0

2

4

6

8

10

12

2015 2016(F) 2017(F) 2018(F)

Semiconductor Wafer Fabrication

Wafer Foundry Wafer Packaging

%

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According to MIC’s statistics, the scale of global smart factory will

be US$205.88 billion in 2016, and the yoy growth rate will be

10.2%. Industrial robots and automated production equipment

are the largest part, accounted for 90%.

Exhibit 9: Scale and Growth Rate of Global Smart Factory

The scales of global smart factory

and the market of industrial IoT are

continuing growing.

Source: MIC

Governments promote IoT into manufacturing, cooperate

management and expanding new business opportunities. These

policies would cause the market of industrial IoT growth.

According to Gartner’s estimation, manufacturing and health care

will be the main application of the IoT market, and industrial IoT

will grow at a compounded annual growth rate (CAGR) of 9.6%

until 2020.

Exhibit 10: Scale and Growth Rate of Industrial IoT

Source: IEK

0

5

10

15

20

25

0

50

100

150

200

250

300

2012 2013 2014 2015 2016(F) 2017(F) 2018(F)

Market scale(LHS) Growth rate(RHS)

trillion US$ %

0%

5%

10%

15%

20%

25%

0

20

40

60

80

100

120

140

2015 2016(F) 2017(F) 2018(F) 2019(F) 2020(F)

Market Scale(LHS) Growth Rate(RHS)

billion US$

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Advantech (2395 TT)

Advantech is one of the top three IPC company in the world. It

owns a brand and its products are sold worldwide. The

application of the products covers medical, entertainment,

transportation, security monitoring, gaming and other fields.

However, the products and business can be approximately

divided into five parts: industrial control, industrial computer,

embedded board and case, industrial applied computer, after-

sale service and other.

Business Development Plan Deepening organizational Sector-Lead development

Since the second half of 2015, the existing business units have

been integrated and consolidated into three business groups,

including “Embedded Design-In,” “Industrial-IoT,” and “Smart

City Solutions” to aim at the markets of industrial equipment

manufacturers, industry 4.0 and IoT, and Smart City services

providers, respectively.

Constructing WISE-PaaS and Wireless Sensor Technology

In response to the need of the IoT generation for prompt and

accurate data retrieving, Advantech grasps the advantages of

Taiwan industry and leverages the existing core competencies to

continue constructing a comprehensive IoT smart cloud platform

in last year.

Organic and M&A parallel growth strategy

Advantech’s growth sources will be from the organic growth of

the organization and M&A in parallel. The M&A strategy is

executed in a disciplined manner to make up the insufficient key

vertical area of Advantech and to refine Advantech’s M&A ability

through a complete methodology.

Exhibit 11: Proportion of Sales by

Products in 2015

Source: Advantech

Exhibit 12: Advantech IoT Platform Architecture

Source: Adventech

15%

industrial computer,

23%

embedded board and case,

41%

10%

11%

industrial control

industrial computer

embedded board and case

industrial applied computer

after-sale service and other

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Axiomtek (3088 TT)

Axiomtek is a subsidiary of Advantech, a large domestic IPC

company. Axiomtek mainly produce embedded board and

system (EBS), Ethernet products, design and manufacturing

services products (DMS).

Axiomtek Plans to Integrate the technology Transport and outdoor computers

Axiomtek will integrate computer computing and industrial

communication technology solutions to develop communication

protocols, industrial converters and remote monitoring

management system. These products will be used in rail

transportation, equipment health clinic, Energy saving, public

works, factory automation and remote monitoring systems.

Factory automation

Axiomtek provides Vision Control Motion solution. This solution

combined hardware and software to achieve automated visual

identification, which can be used in smart factories, heavy

industry and robot applications.

Process Automation

Axiomtek develop smart equipment health diagnosis technology

to assist in collecting large sensor data and monitoring the status

of equipment. This would help reducing productivity ineffective

working hours and improving the production process to enhance

effectiveness.


Products in 2015

Source: Axiomtek

Exhibit 14: Axiomtek Focus on Following Application of IoT

Source: Axiomtek

EMS57%

Ethernet products

20%

DMS16%

others7%

EMS Ethernet products DMS others

14


ADLink (6166 TT)

ADLink start from designing embedded products, and its own

brand ADLink sales worldwide nowadays. ADLink's embedded

products focus on medical and control panels. Medical products

have been sold to Europe, the United States and Japan. In

addition, industrial products are mostly network security and

telecommunications products.

Business Development Plan

Strengthen the design and manufacturing management

ADLink imports FMEA (Failure Mode and Effect Analysis) risk

management concept in order to rise the quality of product

design. It also imports components management database to

assist in electing materials in product design phase.

Expand sales positions

ADLink will increase service base in the EU, the United States

and China to support and service customers nearby.


Products in 2015

Source: ADLink

IBase (8050 TT)

IBase is a leading IPC company, providing industrial computer

OEM / ODM services, and also promote its own brand. The main

product is board, followed by solutions.

Business Development Plan

IBase would strengthen the ability of RMA (Return

Merchandise Authorization) and FAE (field application

engineer) to provide intimate products after-sales service.

IBase would set up more its own factory to strengthen the

ODM/OEM orders capacity.

IBase would promote CRM (customer relationship

management) project to effectively grasp customer needs, to

enhance customer satisfaction, and to build close

partnership.


Products in 2015

Source: IBase

MAPS28%

MCPS33%

ECPS16%

DMSC16%

DCPS5%

MAPS MCPS ECPS

DMSC DCPS Others

Industrial Motherboards

19%

High-end

system product

s73%

Others8%

Industrial Motherboards

High-end system products

Others

15


Ennoconn (6414 TT)

Ennoconn's products include POS (point of sale) systems, ATM

systems, industrial control systems, automotive systems,

human-computer interaction products and other peripherals

such as processors, memory and so on. The largest shareholder

is Foxconn Technology Group, and Foxconn hold 42% stocks.

Recently, Ennoconn merged S&T and Kontron and they would

form a "triangular alliance".

Synergy of the M&A Based on cloud computing and the Internet of Things

architecture, Ennoconn would cooperate with other

manufacturers which have key technologies or components, and

create innovative products and services. Now, Ennoconn has

already merged S&T and Kontron. Ennoconn is good at servers

and data center. It runs the biggest server farms globally. Kontron

has strong customer base, and used to own the largest

embedded market in the past. S&T focus on software. It Leads

embedded software engineering, and owns 1800 East European

engineers. Ennoconn hope that the alliance of Ennoconn,

Kontron and S&T can be among the leaders in IoT, technology

and market share wise, with estimated revenues of EUR 1,5~2

billion in 2018.


Products in 2015

Source: Ennoconn

Exhibit 18: Synergy for Competitiveness

Source: Ennoconn

Industrial

computer, 99%

Industrial computer After-sales service

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Disclaimer

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Devices & Hardware

20161228 IPC產業