Manufacturers of networking switches and hubs across mainland China, Hong Kong and Taiwan, collectively referred to as Greater China, are expanding their output and exports in 2006 to boost their 11 percent share of the thriving worldwide networking market garnered in 2005. The reason for the surging optimism is the success of mainland China's Huawei Technologies Co. Ltd in the worldwide market. Huawei ranked as the world's second largest player in the secure router market in 2005, closely trailing Cisco and surpassing Nortel.
Many mainland China manufacturers are shifting from a domestic marketcentric business model toward a more export-driven approach and more Taiwan makers are promoting their in-house labels while improving their OEM and ODM services.
To understand the dynamics of the networking switches and hubs industry, Global Sources carried out on-site interviews and factory tours of 19 manufacturers and phone surveys of seven others. The 26 manufacturers, including 13 based in mainland China, two in Hong Kong, and 11 in Taiwan, were selected based on their relative position in the supply markets. Many of them are first- and second-tier manufacturers. Several are small players keen on expanding their overseas markets, while others were previously emphasizing OEM and ODM, but are now promoting their own brands.
• Backbone and core networking switches and routers dominate production in Greater China. These are followed by products for SOHO and SME applications.
• Production of hubs continues to decline, as makers switch to more intelligent products. Supply of gateways, routers and multifunction or integrated products is rising.
• Taiwan has more than 100 makers of networking switches and hubs; mainland China, about 35 makers.
• The Pearl River Delta is the manufacturing base for networking switches and hubs in mainland China. Other key sourcing centers are Beijing, Shanghai, Hubei, Sichuan and Fujian.
A perspective of worldwide market and the supply market situation in Greater China is presented in the Industry Background section.
The production capacities and plans of manufacturers are discussed in the Manufacturing Capability section. Key production processes, specifying those that are done in-house and those subcontracted, that buyers may use to differentiate manufacturers, are also covered.
Among the manufacturing concerns and issues faced by manufacturers, and the solutions they are applying include:
• To stave off heavy reliance on chipsets from major foreign suppliers that limits R&D capabilities, large companies are starting to develop homegrown core technologies.
• Fearing components supply shortage resulting from rising demand, more manufacturers are providing chipset demand forecasts and looking for alternative suppliers.
Industry Overview
Greater China's networking switch and hub manufacturing industries are transitioning from a low-end market that is heavily focused on the domestic sphere toward technology-driven products more targeted at the international market. This is evident in makers' expanding product lines and product development initiatives. It is further reflected in makers' increasing emphasis of their overseas business.
Combined shipments of networking switches, hubs and routers from mainland China and Taiwan accounted for 11 percent of the worldwide market for routers and switches in 2005, valued at US$19 billion. Data from Infonetics Research indicate that worldwide revenue from Layer 2 to Layer 7 Ethernet switches exceeded US$16 billion in 2005. The worldwide router market was valued at US$3 billion in the same year, with the secure router segment alone generating US$803 million in annual revenue.
Rising worldwide revenue from switches and routers is prompting makers across Greater China to boost their markets. Mainland China alone reported a growth of 26 percent in production value for switches and hubs in 2005, with total value reaching US$498.28 million compared to US$395.60 million in 2004. The projected production value for 2006 is US$654.30 million, another 31 percent growth.
The export value for switches and hubs in 2005 was US$139.52 million, up by 47 percent from 2004. This is projected to rise further by 31 percent toward US$183.20 million.
In the routers segment, mainland China alone reported 32 percent growth in production value in 2005 to reach $369.09 million. The export value reached US$55.36 million in 2005, up by 98 percent from 2004.
Greater China's Supply Market
International companies such as Cisco have been dominating the networking switch, hub and router industries. The majority of suppliers across Greater China have been focusing on their domestic markets until recently, as marked by their growing export revenues in 2005.
One result of the companies' foray into the international marketplace is mainland China's Huawei Technologies Co. Ltd's strong ranking in the worldwide secure router market. Huawei was the second largest player in the worldwide secure router market in 2005, closely trailing behind Cisco which maintained its top position. Huawei was followed by Nortel in third place.
Mainland China had nearly 100 manufacturers of networking products in 2000. Maturing technology and tight competition shrunk the supplier base. There are now 35 active makers of networking switches and hubs on the mainland, mostly focusing on low-end and midrange products.
Mainland China makers produced 142.36 million ports of networking switches and hubs in 2005, a 44 percent increase from the 98.90 million ports of networking switches and hubs produced in 2004.
Reflecting their shifting business models, makers' export volumes have been experiencing strong growth. In 2005, the combined shipment volume from mainland China reached 39.86 million ports of networking switches and hubs. This represents a 68 percent increase from 23.74 million ports exported in 2004.
Production and exports of routers have also been experiencing an uptake. Production grew by 49 percent over 2004 to reach 9.23 million ports by end-2005. Exports rose by 98 percent in 2005, totaling 1.38 million ports compared with just 700,125 ports shipped overseas in 2004.
Supplier Profile
AboCom Systems Inc.
AboCom Systems Inc. started in 1995 as a manufacturer of PCMCIA and modem cards. In 1999, the company expanded into manufacturing switches and hubs.
AboCom is based at the Hsinchu Science Industrial Park in Taiwan, where it also set up its R&D center in 1997. It has two sales branch offices — one in Taipei, Taiwan and another in Texas, United States. AboCom was listed on the Taiwan Stock Exchange in 2000 under the symbol 2444.
The company reported annual sales of US$142.7 million in 2005 from all its products, up from US$127 million in 2004. ODM and OEM buyers contributed 90 percent to the annual sales, and own-brand sales accounted for the rest. Some of AboCom's major ODM and OEM clients include Linksys, Netgear and Yahoo! BB.
In 2005, networking switches and hubs accounted for 4 percent of the company's annual sales with a total annual sales value of US$5.69 million. The total export value for AboCom's networking switches and hubs for the same year reached US$3.41 million, accounting for 60 percent of the product line's annual sales.
AboCom produced about 200,000 units of DSL gateways, DSL switch routers and DSL multiplexers in 2005. The company estimated that the production volume of DSL gateways, DSL switch routers and DSL multiplexers will hit 300,000 units in 2006, equivalent to a 50 percent growth. About 70 percent of the company's DSL gateways, DSL switch routers and DSL multiplexers can support wireless functionality.
The company shipped about 120,000 units of DSL gateways, DSL switch routers and DSL multiplexers in 2005. The major markets were Western Europe, the United States and Southeast Asia. The company projects an export volume of 180,000 units in 2006, or 60 percent of the projected production volume for the year. AboCom will target the same export markets in 2006. The company projects that the increase in both output and export volumes will enable it to meet its projected annual sales of US$7.245 million from networking products in 2006. The target export value in 2006 is US$4.347, a growth of 27 percent from the export value generated in 2005.
Manufacturing Capability
The company has two factories in Taiwan, both of which have ISO 9001, TL9000 and ISO 14001 certifications. One factory is located in Hsinchu. The other factory, which became operational in 2004, is located in Miaoli, a 30min drive south of Hsinchu. AboCom has eight SMT lines, of which two are high-speed KME SMT lines and four are mediumspeed Juki SMT lines. The facilities have automatic testing machines for non-wave soldering, non-cleaning and high density, as well as assembly and packaging. One free-flow assembly line and one conveyor assembly line are also in place.
All this column of information contained in China Sourcing Reports is the result of original, independent and impartial research conducted by Global Sources analysts.
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