Digital Transformation: Opportunities and Challenges for Taiwan

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Frank Walsh
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3 New Trends in Digital Economy Transformation Mass Platform Customization with business models Extension from Agile Crowd Sourcing core competencies User-centric Mode 1: Operation Digital Mode 2: Journey Innovation Big Data Social Innovation VR Cyber Security Adjacencies Ecosystem Blockchain Autonomous Driving Business Digital models Platform Digital Economy Industry 4.0 with multiple Value Creation ecosystems Social Media Deep Learning Smart City AR AI Sharing Multi-ecosystems Digital Twin Talents New Emerging Trends Platform Business Algorithmic Intelligence Partnership Cyber Physical System Customer Experience Bots Asset Efficiency Digital to the Core HMI Interdisciplinary New DNA Leverage on Intelligence System without Integration Digital existing Ecosystem operational human intervention Soft Power competencies Bimodal Partnership with friends + enemies Frenimies Source: ITRI/IEK(2017/08) All Rights Reserved

Six Pillars of Digital Economy Civil participation/digital human rights Digital Rights Ecosystem Infrastructure Digital Economy High Speed Broadband/ Mobile Device/Cyber Security Service Model

4 Six Pillars of Digital Economy Civil participation/digital human rights Digital Rights Ecosystem Infrastructure Digital Economy High Speed Broadband/ Mobile Device/Cyber Security Service Model Digital Talents Innovated digital Service Traditional industry digitalization Data Analytics AI H/W & S/W integration Cross discipline cooperation Regulation Digital/Virtual World Regulation Source: ITRI/IEK(2017/08) All Rights Reserved

New Paradigm Shifts under Digital Economy Past Digitalization Now Production & Sales Connection, Sensing Service-based Applications Data Sensing, connection and analyzing Virus Detection Security &

5 New Paradigm Shifts under Digital Economy Past Digitalization Now Production & Sales Connection, Sensing Service-based Applications Data Sensing, connection and analyzing Virus Detection Security & Privacy Cyber Security Blockchain security framework Hardware Cost Down H/W & S/W integration Total Solution Customization and integration by s/w & h/w integration Brandingdefined Spec. User-needs User-centric User scenarios and feedback, sharing economy Supply Chain Value web Ecosystem Platform Stakeholders benefits Source: ITRI/IEK(2017/08) All Rights Reserved 4

7 New Biz Model in User-centric Ecosystems Wool out in dogs, pigs to pay ( 羊毛出在狗身上, 豬來買單 ) User Data User-centric Ecosystem Services R&D Brand Financial Stakeholder Advertising, Insurance companies Source: ITRI/IEK(2017/08) Manufacturing $$$ All Rights Reserved Service Provider

9 Taiwan Manufacturing Industry Portfolio (1/2) Value Add Ratio % (2015) Automation (6.4%) High Tech Manuf. Equipment 40 (8.4%) Auto IC Design (0.4%) (22.1 %) 30 Mid. & Small Size Display (20.3%) Med. Device (0.9%) Machine Tool Large Size 20 (5.3%) Display(21.1%) PV (8.0%) PC 10 Robot (0.8%) (68.8%) Petrochemical 0 (3.9%) Cell Phone (4.4%) -10 LED(19.0%) IC P&T (54.1%) Foundry (70.2%) Memory (8.7%) Manufacturing Industries Value Add Ratio in 2015: 24.9% Capex/Revenue % Note 1: x-axle (Capex/Revenue Ratio %) and y-axle (Value Add Ratio Note 2:( ) 2015 Taiwan industry market share worldwide Note 3:Manufacturing Industries Value Add Ratio in 2015 calculated based on GDP/gross sum of manufacturing value Size of the bubble equals revenue and US$40b. Source: ITRI/IEK(2016/09) All Rights Reserved

10 Taiwan Manufacturing Industry Portfolio (2/2) 5000 (2015) High Tech Manuf. Equipment (8.4%) 1000 Mid. & Small Size Display (20.3%) Med. Device (0.9%) Cell Phone (4.4%) Machine Tool (5.3%) Memory (8.7%) IC P&T (54.1%) Automation (6.4%) Large Size Display (21.1%) IC Design (22.1%) Foundry (70.2%) Auto (0.4%) Petrochemical (3.9%) PC (68.8%) LED (19.0%) PV 0 (8.0%) -10,000-10,000 20,000 30,000 40,000 50,000 60,000 70,000 80, Personnel Expenses (US$M) Robot (0.8%) Taiwan Industry Revenue (US$M) Size of the bubble equals Note 1: x-axle (Taiwan Industry Revenue US$M) and y-axle (Value Add Ratio value add and US$50b. Note 2:( ) 2015 Taiwan industry market share worldwide Note 3:Manufacturing Industries Value Add Ratio in 2015 calculated based on GDP/gross sum of manufacturing value Source: ITRI/IEK(2016/09) All Rights Reserved

11 Value-Add 90 (%) Controlling User-centric Ecosystem to Accelerate Innovation Scale-up 80 User-centric Ecosystem Manufacturing Brand R&D Note: Bubble size is market cap. Except for market cap which is as of 2016/09/06, all other financial indicators are 2015 data Source: ITRI/IEK(2016/09) All Rights Reserved

12 Challenges for Taiwan: From 0 to 1, and 1 to N Vertical Progress (Innovation breakthrough) 1 N Speed Economic Scale Globalization Challenges of Taiwan User ecosystem Global market 1 n => 1 Consistency 1x1 = 1 Immutableness Advanced technology Innovated invention New business model User-oriented technology Young start-ups Contract manufacturing 1 => 0 (Cost Down) 0 Horizontal Progress (Success duplication) Source: Peter Thiel; ITRI/IEK (2016/09) All Rights Reserved

13 From Manufacturing to Infofacturing Applications & Services System Integration Cloud Network Terminals & Components Model 1: Service-based Solution Provider Solution Provider Servicebased Solution Provider Model 2: Original System Manufacturing OSM (Original System Manufacturing) ODM Model 3: Service-based Brand Servicebased Brand Brand Model 4: Service Integrator Service Provider Service System Integrator Potential Players: Advantech, Delta, etc. Quanta, Hon Hai, etc. Acer, ASUS, HTC, etc. 7-11, YouBike, etc. Source: ITRI/IEK(2017/08) All Rights Reserved

15 Taiwan Industry Innovation for Next Stage Linkage with the Future Linkage with the Global Resources Linkage with Local Communities Strengthen the Industrial Competitiveness through Innovation Leverage existing strengths in innovation and R&D to develop cutting-edge new product applications and services with global potential Utilize innovative design to market Taiwan Promote cross-industry technology integration, with an emphasis on digitalization, Internet-enablement, smart technology and environmentally-friendly technology Focus on Industry Innovation Initiatives 5 Smart Machinery Circular Economy Asia. Silicon Valley New Agriculture Green Energy Digital Economy National Defense Biotech & Pharmaceutical Technology for Culture +1 IC Design & Semiconductor Source: IDB of MOEA;IEK of ITRI (2017/03) All Rights Reserved 14

16 Digital Nation Strategy: DIGI+ ( ) 6 Key Strategies: 1. Infrastructure for digital innovation (DIGI+Infrastructure) 2. Talents and skills for innovation (DIGI+Talent) 3. Digital transformation for industries (DIGI+Industry) 4. Human rights in open internet and digital society (DIGI+Right) 5. Smart cities with public-private sectors (DIGI+Cities) 6. Digital services and globalization (DIGI+Globalization) Application and Services Sustainable Society Circular Economy Open Society Data Economy Digital Commerce Fintech AR/VR/MR & User Experience 5+N industries New Agriculture Healthy Food Ecosystem Digital Economy Digital Government Internet Society Smart Cities Environment Regulatory Digital Talent Digital Tech Infrastructure for digital innovation Source: BOST; ITRI/IEK(2017/08) All Rights Reserved 15

Goals for Asia Silicon Valley Development

Connect to Silicon Valley and other global

Core Elements Universities Enterprises 3.

17 Goals for Asia Silicon Valley Development Agency (ASVDA) on IoT & Entrepreneurship Connect to Silicon Valley and other global tech clusters Develop industries for the next generation Become an innovative startup destination for young Asians Startups 1. Ecosystem Capitals Legal & accounting services 2. Core Elements Universities Enterprises 3. Links 4. Strategies Talents Research institutes Testbeds 5. Goals Source: ASVDA(2017/03) All Rights Reserved 16

18 Post-IoT era with Artificial Intelligence Integration of Big Data, Computing Power, and User Experience(Algorithm) Number of Connected Devices Amount of Data Generated PC Internet Mobile Social Cloud Data IOT (Ubiquitous) Artificial Intelligence (Smart Machine) Mainframe Computation-oriented Communication-oriented Cognition-oriented 1970s 1980s 1990s 2000s 2015s 2020s Source: ITRI/IEK(2017/08) All Rights Reserved 17

19 AI as X factor to Enable Digital Transformation for Taiwan Taiwan publishing Digital Nation Initiatives 數位國家創新經濟發展方案 (DIGI+) Artificial Intelligence as the Key Driving Factor for cultivating the Enabling Technology and Digital Talent AI as x factor to scale-up Taiwan s strength and to drive the innovation with S/W & H/W integration by domain knowledge: AI X Smart Transportation : Smart City application AI X Smart Services : Converging ICT and service interoperation AI X Smart Manufacturing : Value-added the manufacturing intelligence AI-PU Chip : Enabling AI semiconductor ecosystem Others: AI X Smart Retail, AI X Smart Healthcare, AI X Smart Travel etc. AI X would be the key success factor for Taiwan in the era of digital economy Source: ITRI/IEK(2017/08) All Rights Reserved

Targeting AI-powered Service Sectors AI Supply : Electronic components, Computer and Electronics, Machinery AI Demand : Retail, Financial & Insurance, Medical and Healthcare, Expert Services Value

9 50 40 30 20 Expert Science and technology Public Services & Military Medical & Pharmacy Computer & Opticals Medical Equip.

20 Targeting AI-powered Service Sectors AI Supply : Electronic components, Computer and Electronics, Machinery AI Demand : Retail, Financial & Insurance, Medical and Healthcare, Expert Services Value add ration % Healthcare services Service Sector Avg. 2.2 Retail : Service : Manufacturing Finance & Insurance Manufacturing Sector Avg. 5.8 Circle Size: Revenue Service Sector Avg Expert Science and technology Public Services & Military Medical & Pharmacy Computer & Opticals Medical Equip. Electronic Components Plastic Transportation & Logistics Textile Machinery Chemicals Auto & Parts Manuf. Sector Avg * Listed of AI related service and Food manufacturing sectors Labor Productivity (Million) Note: Value add ration=value add/revenue; Labor productivity= Revenue/# of Labor Source: DGB; ITRI/IEK(2017/08) All Rights Reserved 19

AI-related Ecosystem in Taiwan Applica -tion Tech. Infra.

OEM/ODMs incl. computer, electronic components, machinery, mobile devices, IoT etc. Open Data: ecom(elect.

location, epidemic, Health care service system Policy: 5+2, Sandbox regulatory, Open data Computing system industry incl.

21 AI-related Ecosystem in Taiwan Applica -tion Tech. Infra. Solution Platform Processing Algorithm Big Data Computing OEM/ODM globalized supply chain Localized domain knowledge Computing supply chain The dominant OEM/ODMs incl. computer, electronic components, machinery, mobile devices, IoT etc. Open Data: ecom(elect. Invoice, Housing price), Biotech(National health care DB, Biobank), City(ETC Street Cam, City open data) etc Local features: Traffic behavior, geographic location, epidemic, Health care service system Policy: 5+2, Sandbox regulatory, Open data Computing system industry incl. embedded system, x86 computing system, cloud computing etc. Computing semiconductor ecosystem incl. design and fabrication for processing, GPUs, MCUs etc. Leveraging the strengths on OEM/ODMs, localized domain DB(biobank, Cybersecurity..) and semiconductor for AI-enabled economic transformation Source: ITRI/IEK(2017/08) All Rights Reserved 20

Intelligent Transportation Cases in Taiwan ETC/eTag Today: 1.

97% accuracy 2015 ITS World Congress Industry Award Future development

Enabling Smart City Export Integrated systems 4G Traffic Control Initiative

detector Other traffic information Accident information (Public sector) CHT data

23 Intelligent Transportation Cases in Taiwan ETC/eTag Today: 1.5M/day cars 14M/day transactions 99.97% accuracy 2015 ITS World Congress Industry Award Future development Integrated Smart Transportation Services Customized Business Model and Services Enabling Smart City Export Integrated systems 4G Traffic Control Initiative Complete monitor equipment Analyze traffic flow Traffic control cloud 4G traffic detector Other traffic information Accident information (Public sector) CHT data management and analysis Real-time traffic control Traffic information cloud Real-time traffic information App Source: ITRI/IEK(2017/08) All Rights Reserved

ITRI Case: Smart Traffic Project for Intersection Movement Assist (IMA) IMA: Warns the

when something is blocking the driver s view of opposing or crossing traffic.

24 ITRI Case: Smart Traffic Project for Intersection Movement Assist (IMA) IMA: Warns the driver when it is not safe to enter an intersection, ex. when something is blocking the driver s view of opposing or crossing traffic. IMA V2V Alert - WAVE/DSRC Wireless Comm. - Follow U.S. V2V Mandate Alert HMI IMA R2V Alert - Integrate mmwave Radar - Integrate traffic controller to alleviate congestion Alert Signage IMA Signage Alert - Allow the car without OBU to access the alert from outside Source: ITRI/ICL(2016/09) All Rights Reserved

ITRI Case: Green Fleet Solution for Local Wholesale

wholesale market with 1/3 share in Taiwan but

with testing and verification, and to build

references(over 800 EVs in Taiwan) and assembly

25 ITRI Case: Green Fleet Solution for Local Wholesale Market Xiluo, Yunlin: Biggest fruit and vegetable wholesale market with 1/3 share in Taiwan but serious air pollution and noises from hundreds of diesel trucks. EVs and services system to solve the local issues with testing and verification, and to build self-sustain components and maintenance supply chain. Export to overseas market with local references(over 800 EVs in Taiwan) and assembly factory in Philippines Electrified truck Low-speed EV Diesel truck Central Taiwan- Xiluo Yunlin Southeast Asia- Philippines Source: ITRI/MSL(2016/09) All Rights Reserved 24

ITRI Case: Smart Energy Solution for Southeast Asia Southeast Asia as the target for Smart

industry to fulfill the local needs by technology cooperation ITRI as the platform to link

ITRI/IEK and GEL built the reference cases in Philippines, Laos and Vietnam Demand: Cost

investment and business model Demand: Application Solar demo project by APO Solution: MOU

26 ITRI Case: Smart Energy Solution for Southeast Asia Southeast Asia as the target for Smart City innovation system and service Demand survey and market intelligence Linkage Taiwan industry to fulfill the local needs by technology cooperation ITRI as the platform to link the overseas government and Taiwan industry by innovated system and services integration ITRI/IEK and GEL built the reference cases in Philippines, Laos and Vietnam Demand: Cost of energy generated by Diesel engine due to transportation problem Solution: Micro-grid investment and business model Demand: Application Solar demo project by APO Solution: MOU between Taiwan industry and Power Corp. solar project Source: ITRI/IEK(2016/10) All Rights Reserved

30 Conclusion AI X as the key driver for new economy Data-driven and AI-enabled for value-added service and manufacturing sectors Digital innovation infrastructure and newly start-ups ecosystem User-centric Ecosystem to create value with system integration Control user-centric ecosystem, open innovation by public-private sectors, local test-beds for solution trials, service and operational system verification Smart city reference cases based on local pain points and citizens participation Team-up to solve the local issues, testing/verification and export All Rights Reserved 29

IEK 2020 Vision: World-class Think Tank to Lead Taiwan Industries in Value Creation Thank You http://ieknet.iek.org.tw/ Stephen Su IEK General Director stephen_su@itri.org.tw +886-3-591-2548 Tsu-Yu Chao IEK Division Director tychao@itri.

31 IEK 2020 Vision: World-class Think Tank to Lead Taiwan Industries in Value Creation Thank You Stephen Su IEK General Director Tsu-Yu Chao IEK Division Director Given the rapid pace of change in cutting-edge technology and industry development, the timeliness and comprehensiveness of the information included in this presentation cannot be guaranteed by ITRI. Users of this presentation shall bear full liability for any injury or loss that may be sustained as a result. The Copyright of this presentation belongs to ITRI and none of this presentation, either in part or in whole, in any form, may be reproduced, publicly transmitted, modified or distributed or used by other means without permission from ITRI. All Rights Reserved

Stephen Su General Director Industrial Economics & Knowledge Center (IEK) of Industrial Technology Research Institute (ITRI) Professional Experiences: Principal, Roland Berger Strategy Consultants,

32 Stephen Su General Director Industrial Economics & Knowledge Center (IEK) of Industrial Technology Research Institute (ITRI) Professional Experiences: Principal, Roland Berger Strategy Consultants, Shanghai Sr. Director, Consumer Electronics BU, Primax Electronics Ltd., Taipei Sr. Director, Corporate Development, Primax Electronics Ltd., Taipei Case Leader, Boston Consulting Group (BCG), Hong Kong Applications Engineer, Semiconductor Group, Motorola, Phoenix Professional Specialty: Strategy, operations Improvement, organization change management, business process redesign, new product development and marketing, investment due diligence, manufacturing management Chairman of Committee on Policy and Legal, Cloud Computing & IOT Association in Taiwan (CCAT) (2010-Present) President, Asia Pacific Industrial Analysts Association (APIAA) (2017-Present) Consultant Committee of Science & Technology Policy Research and Information Center (2015-Present) Taiwan Food and Drug Administration(TFDA) Food Safety Technology Project Performance Evaluation Committee Ministry of Economic Affairs(MOEA) Industrial Development Advisory Council Multiple patents in power switching control and mobile phone applications All Rights Reserved 31

Tieto Strategy 2019 Kimmo Alkio

Tieto Strategy 2019 Kimmo Alkio President and CEO, Tieto Corporation Consistently creating value to all stakeholders 2018 Accelerate innovation and growth 2014 2016 Accelerate growth portfolio and M&A