A New High Tech Dynasty?Pete Engardio
Being the daughter of Taiwan's leading industrialist has a few disadvantages. Charlene Wang, 45, president of First International Computer Inc., has spent decades trying to maintain autonomy from her father, Y.C. Wang. The 87-year-old chairman of the Formosa Plastics Group has a passion for controlling every facet of his business. Indeed, Charlene founded FIC in the early 1980s in large part because it wouldn't interest her father. "The safest thing was to go into something he knew nothing about," she says.
But a decade later, her company has snowballed into a $600 million producer of personal computers and their motherboards. Not surprisingly, the old man is taking an active interest. Facing increasing environmental constraints in the petrochemical field, the Wang family is now determined to become a global leader in information processing. FIC is taking the lead, backed by the $6.7 billion Formosa Plastics Group, which is risking nearly $1 billion on memory chips, liquid-crystal display panels, and a mammoth computer factory in China.
MUSCLE. The moves are being spearheaded by a new generation of Wangs (no relation to the family behind ill-fated Wang Laboratories). Educated in top Western universities, Charlene and siblings Winston and Cher preside over some of the family's fastest-growing businesses. Winston, vice-president of Nan Ya Plastics Corp., has advanced into electronics materials and printed-circuit boards. Cher, president of PC maker Everex Systems Inc., is pushing into the U.S. market. In the process, they have converted their father to the virtues of electronics. "He's seen what we've accomplished," boasts Winston.
By the time all the pieces come together five years from now, the Wang family companies could have combined electronics sales of $4 billion. "They will be one of the most integrated computer companies in Asia," predicts Daniel A. Heyler, a Taiwan-based analyst for Dataquest Inc.
Many analysts are betting that the Wangs will succeed because of their financial muscle. Formosa Plastics' stated $12.3 billion in assets includes vast real estate holdings that haven't been revalued in decades. Formosa Plastics Corp., the group's flagship, is laying out $9.5 billion for a petrochemical complex expected to generate revenues of more than $7 billion annually by 1998. It recently opened a $1.6 billion project in Point Comfort, Tex., and wants to invest billions more in China.
Yet the Wangs realize that there are limits to petrochemical expansion. In Texas, Formosa was fined a record $4.3 million three years ago for mishandling hazardous waste and has been cited for dozens of worker-safety violations. The company has canceled plans for a controversial $700 million rayon plant in Louisiana. Meanwhile, widespread criticism in Taiwan and bureaucratic delays in China forced Y.C. Wang to call off a planned $7 billion petrochemical zone in the mainland two years ago. Company revenues have stayed stagnant, at around $1.2 billion, since 1991.
That's why electronics is seen as a new avenue of growth. Formosa executives believe their corporate culture has prepared them to survive the industry's intense competition. Y.C. Wang has fostered a fanatical devotion to cost-cutting, and his 10 children--all of them executives in family businesses--have maintained many of his frugal ways. Out of deference to their father, who was in his 80s before he agreed to fly business class on transpacific flights, the children avoid being chauffeured except when on business.
Those lessons in cost-cutting have come in handy. In 1980, Charlene and her husband, Ming J. Chien, established FIC, which produced IBM clones under its Leo brand. Business took off in 1987, when FIC moved into motherboards, the main circuit cards at the heart of every PC. After the PC price war in 1991, FIC drove out smaller competitors. FIC "had the money for economies of scale when others were hurting," says Robert Lo, Intel Corp.'s Taiwan manager.
Still, the motherboard sector has limits. Even though Taiwan's sales of motherboards soared 54% last year, the average price plunged from $176 to $101. FIC's profit margins are just 3.5%, and analysts predict earnings from motherboards will be flat this year at around $8.5 million. "They need to put their emphasis on more high-growth areas," says Andrew Hubert of Masterlink Securities Taiwan.
One such area is notebook PCs, now a $1.7 billion industry in Taiwan that is expected to grow by 70% over the next two years. By yearend, FIC hopes to produce 20,000 notebooks per month and become a top supplier to original-equipment manufacturers.
The Wangs' game plan is to be more than a supplier of assembled systems. They also want to be a mass-volume producer of modules for dozens of computer brands. The goal, says FIC Chairman Chien, is to "be one of the most important subsystem suppliers in the world." This helps explain the company's buildup in China. FIC makes color monitors and motherboards in Guangdong province. By next year, it will be producing up to 150,000 motherboards and up to 70,000 PCs per month on a sprawling site near Shanghai.
The Wang approach to PCs follows the pattern Y.C. Wang established in chemicals--vertical integration, high production volume, and state-of-the-art automation. With their own supply of LCD panels and dynamic random-access memory chips (DRAMs), the Wangs won't be slowed by the chronic shortages and sudden price hikes that have hampered Taiwan's notebook industry. They also expect to supply the voracious demand of other Taiwanese computer makers, who last year imported $500 million worth of LCDs and $3 billion worth of DRAMs--mainly from Japan. The strategy is risky. The burden of maintaining vertical integration could force them to charge a premium for their DRAMs and PCs. Moreover, vertical integration didn't help Japanese companies withstand competition from more focused rivals.
But none of those concerns are holding the Wangs back. In November, they paid $2.3 million to rescue Fremont
(Calif.) computer maker Everex Systems from Chapter 11. Everex, which had annual sales of $433 million at its peak in 1992, was regarded as an innovator in high-end, multiple-user PCs. It also had more than $2 billion in contracts to supply the U.S. government and the Army. But Everex' heavy spending on research and development and high overhead proved fatal.
The acquisition presents a test of the new generation's business acumen. Instead of steamrolling the competition in a commodity business, the Wangs will have to prove they can compete in marketing savvy and customer service. Asks Stan Shih, chairman of rival Acer Corp.: "Do they have the corporate culture to respond to rapid changes in technology and for managing people in a dynamic way?"
The answer will largely depend on what kind of imprint the children can make on the group's businesses. Y.C. Wang likes to grill group managers on the prices of everything from refreshments at company functions to toilet paper used at a company-owned hospital. "Every day, he finds some problem," Winston says. "Interference is the word."
Yet Winston has had some success in winning his father's confidence. Last year, he convinced Y.C. that products such as PCBs, chips, and LCDs have a lot in common with Formosa's traditional commodities businesses, where the winners are determined by efficiency and raw-material costs. The electronics business accounted for 9% of Nan Ya's 1993 sales of $2.36 billion and profits of $250 million. Over the next two years, sales in the electronics businesses should grow by about 45% and profits by 38%.
"STRANGLEHOLD." Under Winston's direction, Nan Ya has begun producing monochrome LCD screens and wants to license the technology to make more advanced thin-film transistor (TFT) color panels. It has budgeted some $500 million for a wafer fab and signed a technology-transfer agreement with Japan's Oki Electric Industry Co. The two will produce eight-inch wafers for 16-megabit DRAMs by 1996 and collaborate on the development of next-generation chips.
Future plans depend on the succession to Y.C. Wang. "No matter who takes over, no one will have the same stranglehold," says a Western chemical exec in Taipei. Still, the family has control of most group companies via a maze of cross-holdings. So most analysts assume a Wang--probably Winston--will be in charge.
As a result, Y.C.'s legacy should be felt for decades to come. While his children were studying in the West, he wrote them long letters filled with advice on everything from lifestyles to managing a chemical plant. As the children plunge into industries where small mistakes can mean huge losses, those lessons will be more valuable than ever. Whether they translate from smoke-belching chemical plants to computer clean rooms could determine whether the Wangs will build Asia's next high-tech dynasty.