February 14, 2017 9:30 am JST

Taiwan Inc. moving to invest even more in Japan

Momentum builds as Advantech eyes new acquisitions

KENSAKU IHARA and YUTA ASOMURA, Nikkei staff writers

Taiwan's Advantech is gearing up for Japanese acquisitions.

TAIPEI/TOKYO -- Taiwan is turning into a high-powered financial backer of corporate Japan, with industrial computer maker Advantech seeking big buys in a continuation of a trend that kicked into gear with the 2016 acquisition of Sharp by Hon Hai Precision Industry.

Long home to contract manufacturers, Taiwan now also boasts leading industrial machinery fabricators and software developers. Team Taiwan is looking to Japan in its quest to support the so-called internet of things and other innovations. 

Enter Advantech

Advantech is thinking about purchasing Japanese companies with advanced technological capabilities, President Chaney Ho told The Nikkei. There may also be an acquisition surpassing the $100 million deal for U.S. router supplier B+B Smartworx, the largest in Advantech's history, Ho said. The deal was completed at the end of 2015.

The targets: makers of components for devices that monitor the status of equipment and transmit the data. Factory-use telecommunications devices and their parts are so diversified that Advantech's own capabilities cannot accommodate all potential clients. Ho is even willing to settle for individual segments or product units rather than entire companies.

Technicians from the old Hewlett-Packard set up Advantech in 1983. The company went on to specialize in computer-aided control instruments for production lines, as well as industrial telecommunications devices and sensors that monitor products and manufacturing equipment. Japanese companies including Omron and Contec produce similar offerings.

Advantech's clientele includes not only a wide range of Taiwanese electronics manufacturers, but also General Electric of the U.S. and Philips of the Netherlands. Booming demand for automation lifted Advantech's group sales 11% to 42 billion New Taiwan dollars ($1.35 billion) in 2016. Profit is strongly expected to hit a new annual record.

His company now plans to raise revenue and profit by 15% a year, with acquisitions accounting for 3 points to 5 points of the bounce, Ho said.

Hitachi and Toshiba are also Advantech customers, and IBM Japan entered into a partnership with the company last year. Advantech factory-use devices and IBM Japan cloud-based applications will be fused into a platform visualizing the working environments of plant equipment.

Labor costs prevent Japanese manufacturers from competing with Taiwan in equipment production, said Ho, who sees the Japanese side seeking collaborations and contract manufacturers to boost cost-competitiveness. Amid Japan's strained relations with mainland China, Taiwanese enterprises would be the best business partners, Ho argued.

Ho said that his company was targeting to expand its business in Japan to 15% of revenue, and grow the head count to some 500 people from 80.

A broader presence

Taiwan invested some $4.5 billion in Japan last year, according to the Taiwanese Ministry of Finance -- 15 times as much as in 2015. Even without funding connected to the purchase of Sharp by Hon Hai, or Foxconn, the figure still jumped by half.

Official Japanese statistics for the first nine months of 2016 show Taiwan as the fifth-largest foreign investor in Japan. And in manufacturing, the footprint is especially wide.

In 2014, Taiwanese lathe maker Fair Friend Group bought Ikegai, noted for creating Japan's first homegrown lathe. Ikegai bought domestic machine tool parts manufacturer Shin Nippon Koki last year.

Taiwan's Hiwin Technologies is also on the hunt for a Japanese acquisition, with Chairman Eric Chuo expressing a desire to have a factory in-country.

The graying of management is leading more Japanese businesses to consider putting themselves up for sale or shutting down altogether. The Nihon M&A Center, which supports mergers and acquisitions among small and midsize Japanese enterprises, oversaw 420 such deals in fiscal 2015 in a doubling over three years.

Meanwhile, 36% of companies set to end operations say earnings are robust compared with industry competitors, according to a survey by the state-owned Japan Finance Corp. For many businesses, problems with operations are apparently not the reason for shutting down.

Taiwan's inroads into Japan could have a geopolitical tinge as well. Taiwanese President Tsai Ing-wen took office last year raising the banner against dependence on China -- and this may inform a push to invest in Japan. With Sharp's earnings improving since the Foxconn deal, a Taiwanese official speculates that Japanese companies may grow more willing to accept funding from Taiwan.

Asia300

Advantech Co., Ltd.

Taiwan

Market(Ticker): TAI(2395)
Sector:
Industry:
Electronic Technology
Computer Processing Hardware
Market cap(USD): 4,999.7M
Shares: 633.25M

Sharp Corp.

Japan

Market(Ticker): TKS(6753)
Sector:
Industry:
Consumer Durables
Electronics/Appliances
Market cap(USD): 18,638M
Shares: 4,994.53M
Asia300

Hon Hai Precision Industry Co., Ltd.

Taiwan

Market(Ticker): TAI(2317)
Sector:
Industry:
Electronic Technology
Computer Peripherals
Market cap(USD): 64,131.9M
Shares: 17,328.7M

OMRON Corp.

Japan

Market(Ticker): TKS(6645)
Sector:
Industry:
Electronic Technology
Electronic Equipment/Instruments
Market cap(USD): 9,330.97M
Shares: 213.95M

Contec Co., Ltd.

Japan

Market(Ticker): TKS(6639)
Sector:
Industry:
Electronic Technology
Electronic Equipment/Instruments
Market cap(USD): 86.88M
Shares: 6.6M

Hitachi Ltd.

Japan

Market(Ticker): TKS(6501)
Sector:
Industry:
Producer Manufacturing
Industrial Conglomerates
Market cap(USD): 29,306.8M
Shares: 4,833.46M

Toshiba Corp.

Japan

Market(Ticker): TKS(6502)
Sector:
Industry:
Consumer Durables
Electronics/Appliances
Market cap(USD): 11,728.6M
Shares: 4,237.6M
Asia300

HIWIN Technologies Corp.

Taiwan

Market(Ticker): TAI(2049)
Sector:
Industry:
Electronic Technology
Electronic Components
Market cap(USD): 1,856.81M
Shares: 274.66M

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