Outlook of Taiwan’s Communication Industry Present to: the 10th ATIE April 07, 2005 Sean Wang, General Director Industrial Economics Knowledge Center (IEK) Industrial Technology Research Institute (ITRI)

Outline Current Status Current Status Telecomm Service Telecomm Equipment Current Status Telecomm Service Telecomm Equipment Worldwide Position and Opportunities Promotion Perspective

Focus Industries of Taiwan 2004 Revenue (US$Bn) 12.0 Telecomm Broadband Networking: Optical communication industry, LAN products, broadband access equipment and IP applications. Wireless Communications: End user equipment, WLAN, WMAN, Personal Area Network, Data transmission devices 67.2 IT IT Hardware Network & Communications Software Industry 32.9 IC IC: IC design, manufacture, assembly and testing IC related applications: memory, logic components, system chips, communication, display, multimedia and IA. 21.3 FPD Panel : PDP, TFT LCD, TN/STN, OLED Key Component: Glass, Color Filter, Backlight, Driver IC, Polarizer Source：IEK/ITRI (2005/04)

Evolution of Telecomm Service In Taiwan 3G Release of Fixed-network telecomm service Leased-circuit service -Local long-distance land cable -International submarine cable Release of ISR Mobile Virtual Network Operator (MVNO) After 2000: completing liberalization, broadband infrastructure Reform of the Directorate General of Telecommunications Release of Trunked radio service (’97) Radio paging service (’97) Cellular mobile service (’97) Mobile data communication service (’97) Low-powered cordless phone (1900MHz) (’99) Release of CT-2 Chunghwa Telecom Co. established 1990-2000: on-going liberalization Terminal equipment liberalization Telecom network usage liberalization Before 1990: government monopoly 1987 1989 1994 1996 2000 2002 2004 1998 Source：IEK/ITRI (2005/04)

Evolution of Telecomm Equipment Sector in Taiwan Main Products + Ethernet BB Access Equip. Mobile Phone Telephone Set + Analog Modem +Ethernet 1960 1970 1980 1990 2000 Development Stage WW Supplier Investing in R&D Relying on Import Source：IEK/ITRI (2005/04)

Telecomm Industry of Taiwan: Structure Telecomm Equipment RF IC Design Mediatek 、VIA 、Yuantonix、RALINK、ITRI/CCL/STC … Baseband IC Cellular Phone BENQ、 DBTEL、 QUANTA COMPUTER、 LITEON、 ARIMA、 COMPAL、 … Epitaxial Wafer VPEC、GETC、 Feedback ….. Foundry (GaAs，Silicon) WIN、 AWSC、 GCT、 UMC、 TSMC、 … Packaging USI、 THEIL ….. Testing KYEC … Wireless LAN GEMTEK、 ZCOM、 ACCTON、 USI、 ASKEY … Source：IEK/ITRI (2005/04)

Telecomm Industry of Taiwan: 2004 Results Long-Distance Phone 3.9% International Phone 7.5% 56.5% 11.9% 6.7% Mobile Phone Local Phone Others Internet & Data 13.6% Telecomm Service 2000 2001 2002 2003 Revenue, US$ Bn 4 8 12 2004 12.0 11.0 Service Equipment Telecomm Equipment LAN 28.2% CPE 57.5% Transmission & Switching 3% Broadband Access 11.3% Source：IEK/ITRI (2005/04)

Trend Analysis of Major Telecomm Service in Taiwan 35 Mobile phone penetration rate > 100% since 2002 Mobile Phone 30 0% 20% 40% 60% 80% 100% 120% 25 Fixed Line No. of Subscribers (million) 20 Penetration Rate Internet 15 Broadband Quick adoption of broadband since 2000 10 5 1997 1998 1999 2000 2001 2002 2003 2004 Source：IEK/ITRI (2005/04)

Revenue Share of Telecomm Services in Taiwan 9.6 9.3 9.6 10.2 11.0 Revenue: US$ Bn 100% Others 9.6% 11.8% 12.2% 13.6% Internet and other value-added services 80% 51.9% 54.3% 53.9% 54.2% 56.5% Mobile phone service 60% 40% 10.2% 7.4% 9.2% 7.4% 7.7% 5.9% International telephone service 4.8% 4.2% 7.5% 20% 3.9% Long-distance telephone service 6.7% 6.7% Leased-circuit service 24.5% 21.9% 20.3% 13.4% 11.9% Local telephone service 0% 2000 2001 2002 2003 2004 Mobile phone service has been the main revenue source Source：DGT ; IEK/ITRI (2005/04)

Telecomm Industry of Taiwan: Equipment Sector WW Ranking 17 15 13 Focus Products Wireless: Cellular phone, WLAN, Bluetooth, GPS Wireline: xDSL, LAN Switch, SOHO Router Cable Modem, VoIP, Optical Communication 25 Projection 20 Wireless 15 Wireline Revenue, US$ Bn 19.4 10 14.7 7.7 5 4.3 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2005 growth rate is estimated at 22.5% for all telecom equipment 2005 growth rate is estimated at 23.4% for wireless equipment Source：IEK/ITRI (2005/04)

Ranking of Taiwan’s Top 10 Telecomm Products Revenue (US$Bn) Growth Revenue Share Ranking 2004 2003 2004/2003 2004 2003 2004 2003 Cellular Phone 3.99 3.13 27% 33% 35% 1 1 WLAN 1.54 1.46 5% 13% 16% 2 2 SOHO Router 0.99 0.77 29% 8% 9% 3 3 xDSL CPE 0.98 0.67 5% 8% 7% 4 5 GPS 0.92 0.69 46% 8% 8% 5 4 Ethernet Switch 0.72 0.60 20% 6% 6% 6 6 Bluetooth 0.44 0.17 159% 4% 2% 7 9 Cable CPE 0.37 0.29 28% 3% 3% 8 7 IP Phone 0.24 0.15 60% 2% 2% 9 10 Analog Modem 0.21 0.27 -22% 2% 3% 10 8 Others 1.58 0.85 86% 13% 9% TOTAL 11.98 9.05 32% 100% 100% *Including both domestic and overseas production revenue Source：IEK/ITRI (2005/04)

Outline Current Status Worldwide Position and Opportunities Telecomm Service Telecomm Equipment Worldwide Position and Opportunities Promotion Perspective

Worldwide Ranking of Taiwan’s Products WW Ranking* Top 1 Top 2 Top 3 Telecomm Wireless LAN ADSL Modem/Cable Modem/Analog Modem NIC Hub SOHO Router Lan Switch Opto-Electronics CD-R Disk CD-RW Drive/Disk DVD-R Disk DVD RW Disk Large Scale TFT-LCD Module S&M Scale TFT-LCD Module LED DSC CD-ROM Drive/DVD-ROM Drive/DVD-W Drive/DVD RW Disk TN/STN LCD Module PDP FPD LCD Monitor Notebook PC Mother Board IC IC Manufacturing IC Packaging Mask ROM IC Design DRAM *Worldwide ranking by 2004 revenue Source：IEK/ITRI(2005/04)

Communication Network Plays An Important Role Sharing Interoperability KID’S BEDROOM MASTER BEDROOM Wireless：Cellular、IEEE 802.1x、Bluetooth 、UWB、Zigbee、RFID Interface：IEEE 1394、USB、DVI、HDMI Wireline：Power Line、Phone Line、Ethernet STUDY KITCHEN LIVING ROOM Source：IEK/ITRI (2005/04)

Opportunity for Worldwide Telecomm Equipment Suppliers Video Streaming Handset Mobile Terminal Handset Data Handset Smartphone Tone Phone Digital Phone VoIP Phone Video Streaming Phone Wireline Terminal Screen Video Phone Home Networking (WLAN) Residential Gateway Modem BB Modem BB Router Access FTTC/B FTTH Metro Access Sonet/SDH Metro Ethernet Backbone Sonet/SDH DWDM Opportunities: Mobile Terminal for handset: Smartphone & Video Streaming Handset Networking: xDSL、IP DSLAM、Switch、VoIP CPE 、 Optical Transceiver 、Home Gateway、Home Networking Transmission: FTTx 、Metro Ethernet No for backbone NGN: B3G，iB3G；Integration of Cellular Phone & WLAN Source：IEK/ITRI (2005/04)

Outline Current Status Worldwide Position and Opportunities Telecomm Service Telecomm Equipment Worldwide Position and Opportunities Promotion Perspective

Telecomm Industrial Development Environment in Taiwan R&D and Innovation System Resources Integration High Value-Added Manufacturing Center Financial Support Warehousing and Distribution Center Resources for Production Technology Manpower Capital Competitive Investment Incentives Tax Benefit Subsidization Regulatory Framework Company Operation Related Laws & Regulations Environmental Protection Related Laws & Regulations Source：IEK/ITRI (2005/04)

Telecomm Industrial Development Emphasis in Taiwan Industry Testing Capability 1. Promote Wi-Fi set up second testing laboratory 2. Improve testing services and environment Promote IPO* 1. Expand from purchasing key component to major system device products International Collaboration 1. Push for international cooperation 2. Promote establishment of R&D center Industry Practical Platform 1. OMIA 2. Telecomm Industry alliance Telecomm Industry Investment 1. Establish research and development center 2. Develop new products 3. Set up new companies 4. investment in company’s facilities Key Product Development 1. WLAN/cell phone/IP telecom/FTTx/EFM/duo network（include home network & VoIP） *IPO: International Purchasing Offices Source：IEK/ITRI (2005/04)

Comm. Infra + App. Development M-Taiwan Zoo Touring Transportation Mobile Life Diet Traveling Government Harbor Mobile Service Medical Warehouse Cellular WLAN Networking Comm. Infra + App. Development Exhibition Museum School Library Mobile Learning Create new applications, from network infrastructure construction Consumer Device NIC/Handset Network Router/AP SI Networking Service Content Application Source：IEK/ITRI (2005/04)

((( ))) Thank You! 謝謝!