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Tuesday, May 14, 2013

In Taiwan, Lamenting a Lost Lead

In Taiwan, Lamenting a Lost Lead

Chris Stowers for The International Herald Tribune

Jonney Shih, the chairman of Asustek Computer, at Asus's headquarters on the outskirts of Taipei in April.

TAIPEI, Taiwan - Jonney Shih, the chairman of Asustek Computer, has epitomized the Taiwanese electronics engineer for a generation: a slender figure in rumpled, baggy trousers, he once helped Intel solve heat problems in its Pentium 4 microprocessors.

Asus's product, the PadFone 2, lets the user slide a cellphone into the back, turning a tablet into an oversize cellphone.

So it has been a surprise over the last several years to see Mr. Shih, now 60, reinvent himself with snug-cut Italian suits, innovative designs for tablet and notebook computers and scathing criticisms of Taiwan's test-obsessed, engineering-oriented educational system.

“I don't think the Taiwanese got very good training to drive the mentality of innovation,” he said during an interview at Asus's headquarters here on the outskirts of Taipei. (Mr. Shih also demonstrated his flexibility in the interview, assuming the lotus position while wearing a dark blue Armani suit with a sky-blue Armani tie.)

Fostering innovation has become a mantra among corporate leaders and government officials alike in Taiwan this year because the island's huge consumer electronics industry has run into serious trouble.

Worldwide sales of PCs, for which Taiwanese companies control over 90 percent of the final design and manufacturing, are declining steadily. Sales of smartphones, for which Taiwanese companies control less than a fifth of the market, are rising briskly. Tablets based on the Android operating system, which most Taiwanese companies, with the exception of Asus, have been slow to embrace, are also on the same upward trajectory.

“Outside of Asus, all the others are struggling,” said Helen Chiang, a Taiwan electronics specialist at the IDC research firm.

Foxconn and Acer have each reported that sales in the first quarter dropped 19 percent from a year ago. HTC's sales plunged 37 percent, although that was partly because the company began shipping the annually improved version of its best-known smartphone in late March instead of February. At Quanta, a 70,000-employee contract designer and manufacturer of notebook computers, sales have shown double-digit percentage drops from year-earlier levels for 14 consecutive months.

Foreign rivals have proved more nimble. In South Korea, Samsung is expanding rapidly in smartphones, tablet computers and other sectors. After embracing the Android operating system early, the company has built on its huge economies of scale in the mass production of components, like display screens and microprocessors.

In China, Lenovo and many smaller manufacturers are relying on labor that, while no longer cheap, is still less expensive than in Taiwan. That helped make Lenovo the only one among the top five PC makers worldwide to eke out a gain in shipments in the first quarter - although by only a tenth of a percent.

And in the United States, Apple, Google and Amazon have shown themselves adept at producing breakthrough consumer products, while pending legislation would allow them to import more foreign engineers at a lower cost than hiring and training domestic engineers.

As notebooks and other Windows-based PCs have lost ground, first to Apple tablets and now to Android-based designs, even Microsoft has been indicating dissatisfaction with the pace of PC innovation in Taiwan. Despite a longtime aversion to hardware, Microsoft recently introduced its own Surface tablet.

“The Surface tablet is a pretty strong signal to the whole Taiwan PC ecosystem that they're not innovating enough,” said Bill Whyman, a senior managing director at the ISI research firm.

One exception to Taiwan's difficulties is Asus. Its many new Android-based tablets, including one that it has branded with Google, allowed it to surpass Amazon in the first quarter of this year to become the third-largest player in the global tablet computer market, behind Apple and Samsung, according to IDC.

And some of its designs are downright clever. One new model, the PadFone, lets the user slide a cellphone into the back, turning the tablet into an oversize cellphone. Another tablet, the Transformer, features a detachable keyboard with a wireless connection and a two-sided display panel that can show a movie on one side to entertain children or guests while the other side is a regular computer display for the owner.

This article has been revised to reflect the following correction:

Correction: May 14, 2013

A picture caption on Monday with an article about a push for innovation in Taiwan described incorrectly the sitting position of Jonney Shih, chairman of Asustek Computer. While Mr. Shih did assume the yoga lotus pose during an interview, he was shown seated in a cross-legged position in the picture, not in the lotus pose.

A version of this article appeared in print on May 13, 2013, on page B1 of the New York edition with the headline: In Taiwan, Lamenting A Lost Lead.