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Taiwan's 3-D sensing supplier to Apple vows to double capex

Win Semiconductors upbeat on facial recognition, not moving production to US

A woman tries the facial recognition system in the iPhone X at the Apple store in Tokyo. (Photo by Maho Obata)

TAIPEI -- Taiwan's Win Semiconductors, the sole manufacturer of laser components for the facial recognition system in the iPhone X, plans to increase its capital expenditure significantly in 2018 to address surging demand for 3-D sensing applications for smartphones and other electronic devices, according to the company's top executives.

The iPhone X's facial recognition technology, Face ID, acts as a security barrier, allowing users to unlock their phones and make payments, for example. 

"We will at least more than double our capital expenditure in 2018 to meet expanding uses of 3-D sensing features in various devices," said Wang Yu-Chi, chief executive of Win Semi, in a recent interview with the Nikkei Asian Review. For all of 2017, the Taiwanese company's capex amounted to some $100 million.

"The 3-D sensing applications will not be limited to unlocking the phones. We believe such a feature will not only scan faces but also be able to scan objects or sense the environment in the future," said Wang.

Chairman Dennis Chen, right, and CEO Wang Yu-Chi, left, of Win Semiconductor looks to 5G for next wave of growth. (Photo by Cheng Ting-fang)

The most notable 3-D sensing feature so far can be seen in the iPhone X's TrueDepth camera, which can detect faces to unlock phones and create so-called Animojis -- a new animated emoji feature -- that can simulate the facial expressions of the user.

The Apple-designed feature requires a phone to have two vertical-cavity surface-emitting lasers, or VCSEL parts, that can first detect and then map faces. The company's AirPod wireless earbuds also require a laser component for their proximity-sensing function.

Expanding market

Despite demand for the latest iPhone falling short of what many market watchers had expected, Win Semi is optimistic about the future as the new uses of sensors could bring opportunities for producers of high-quality laser components. According to David Dai, an analyst Sanford C. Bernstein, all of the 3-D sensing-related components in an iPhone X cost around $20, with lasers the most expensive parts.

Wang said he saw expansion opportunities for 3-D sensing in smartphones as the feature is still in its nascent stage. It is likely that the technology will very soon be used in gadgets other than mobile phones, including robot vacuum cleaners, smart speakers and other home appliances, according to Wang.

Win Semi, based in the northern Taiwanese city of Taoyuan, is the sole contract manufacturer of laser components for Lumentum, which supplies lasers for the iPhone X.

However, in 2018, Apple is keen to add new suppliers, such as California-based Finisar and Switzerland-based II-VI, into the pipeline. Last December, Apple said it would award Finisar some $390 million to help its research and development spending and production and create 500 positions in Texas in the U.S.

Apple's move to fund Finisar came a few weeks ahead of the U.S. tech company's pledge to invest some $350 billion to boost the U.S. economy, echoing President Donald Trump's call to increase manufacturing jobs at home.

But Win Semi's management does not currently see the incentive to move production to the U.S.

"We don't think at this point it will be easy for us to recruit enough qualified employees there and we are also concerned whether it will be cost-effective," Chairman Dennis Chen said in an interview with the Nikkei Asian Review.

Chen said his company had not received any request or felt any pressure from its U.S. client to start manufacturing there.

'Turnaround wizard'

Specialized in finance and management and nicknamed the "turnaround wizard," Chen is well-known to have saved Win Semi, which was on shaky ground when he took over the reins back in 2003. First, he helped to secure investment from industry titan Yeh Kuo-I, co-founder of Inventec, a leading Taiwanese electronic contract manufacturer, then hired tech guru Wang Yu-Chi, a material science Ph.D from Rutgers University and formerly a researcher at Bell Labs, to be the company's chief executive.

The company's market capitalization has decoupled since it listed on the smaller Taipei stock exchange at the end of 2011.

Chen was previously a senior executive at Taiwanese food conglomerate Namchow Group and is also currently a board member and vice chairman of Hiwin Technologies, Taiwan's leading precision machinery parts maker.

Analysts said Win Semi is likely to continue be a major supplier for Apple's laser parts in 2018 and could see some new business from premium Android phones.

Lin Jian-Hong, an analyst at Taipei-based Topology Research Institute, said that with two to three upcoming models of the iPhone likely to incorporate the 3-D sensing feature in 2018, compared with only one in 2017, the need for laser components will definitely increase.

As a compound semiconductor contract manufacturer, Win Semi is also looking to the fifth generation, or 5G, mobile network for its next wave of growth.

Compound semiconductor is a raw material, and an alternative to silicon, that can be used to make chips, light-emitting diodes and solar components. It is most commonly used to make power amplifiers and radio frequency chips for wireless devices to ensure high-quality phone calls and good data transfer.

This material could see many more applications in the 5G era, said Wang, in which emerging gadgets, autonomous vehicles and networking equipment will need to operate with high voltage and high frequency, with faster transmission speeds and extremely low latency.

In December, Win Semi said it would raise $5.54 billion New Taiwan dollars ($191 million) via a private placement by selling some 4% of its shares to one of its key customers, Avago Technologies General IP, a subsidiary of U.S. semiconductor group Broadcom.

The plan is to secure more orders, and finance R&D spending and production equipment, according to the company.

For all of 2017, Win Semi's revenue was NT$17.05 billion, surging 25.38% from 2016. Shares of Win Semi nearly tripled since the beginning of 2017 on the Taipei Exchange. But they have slipped 20% by Feb. 1, since its peak in December amid loss of orders to rivals and weakening demand for the iPhone X.

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