Letter To Shareholders - Mitac

and testing. Once products are introduced on the market, they have correspondingly
higher margins and longer product life cycles. As a result, major multinational server
vendors are relatively cautious when it comes to outsourcing manufacturing or design of
their server products, and building a business partnership requires a longer time. Besides
hardware products, software products are another important factor in the quality of
services provided by servers.
In terms of product types, traditional pedestal servers are already seeing gradual
decreases in their share of shipments in the American market. Replacing them as the
mainstream choice are rack-mounted servers, and this shift should become evident in
Europe and Asia as well over the next one or two years. Following rack-mounted servers
are highly computing-density blade servers. Because of the more stringent heat
dissipation demands of rack-mounted and blade servers stemming from their high
computation densities, vendors in this segment will be spending more for R&D and allied
investment than was necessary in the past for pedestal servers.
As for the storage device market, in the past, under the circumstances of closed supply
structure and the production amount of uniform model of products were small, vendors
rarely outsourced from Asian regions since the manufacturing profits were sufficient.
However, in the past two years, terrible market competition has forced vendors to seek
outsourcing partners in Asia; this will result in storage vendors outsourcing a greater
proportion of their manufacturing, which will greatly benefit Taiwanese vendors.
3. Mobile communications products
(1) Current state of the industry and prospects
A. Portable Navigation Device
In recent years, GPS technologies have made several breakthroughs with
regards to compactness and energy saving qualities; it is becoming widely
accepted with the reduced costs of related components and the maturity of
digitized mapping technologies. According to the statistics of several research
institutions, GPS navigation will attract billions of users by year 2020; the market
of similar products is estimated to reach NTD 16 trillion and the demand for GPS
navigation products may reach EUR270 billion.
According to the latest market research of Canalys, worldwide PND sales are
estimated at 39 million in 2010, a slight growth from the 38 million in 2009.
As more manufacturers and brands enter the PND market, the future of GPS
lies in its integration with cell phones, cameras and other mobile devices, and the
introduction of value-added services. With more functionality available, selling
prices are continually dropping; several GPS brands are trying to control costs by
acquiring map data providers. However, approximately more than 500 million
cars in the world have yet to install navigation systems, and on top of which the
cost of producing cars with embedded GPS navigation remained high, thus there
is still significant potential to the PND market.
B. Audio Video Navigation
With the maturing of navigation technology, more and more car
manufacturers are considering preinstalling auto navigation devices. Based on the
analysis of TRG, approximately 9.1 million auto navigation devices will become
available worldwide in 2010. The European and US markets are the most highly
developed with penetration rates of 27% and 29%, respectively. As
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