20161228 IPC產業

1
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Industry PC 2016.12.13
Taiwan: IPC
Industry 4.0 Trend is Booming the IPC Industry
Analysis and Comments Research Analyst
 Jesse Kuo
 jessekuo.l@gmail.com
Conclusion
 Small-volume and large-
variety orders causes high
gross margin.
 Stable downstream customer
makes small competition.
 The trend of industry 4.0
would rise the demand of IPC.
We have a positive view of the IPC industry. There are
three following reasons:
 The characteristic of IPC industry is customized and
small-volume large-variety orders, so most PC
manufactures didn’t enter the IPC market. As its
products are tailor-made for clients in different
industries, IPC companies can earn higher gross
margin, such as 20%~40%.
 The products of IPC company may involve the
customers’ important information, such as security,
confidentiality and business model, so the
customers would not pursue the best performance,
and seldom change the supplier, which cause less
competition.
 Since Germany proposed industry 4.0, countries
have followed suit, and Industrial PC is one of the
main component in industrial 4.0. According to the
expectation of Markets and Markets, the market
scale of IoT components will grow the US$297,730
million in 2019, and the CAGR will be 33.9%
between 2014 and 2019.
Exhibit 1: Global Market of IPC
Related Company:
 Advantech
 Axiomtek
 ADLink
 Ennoconn
 IBase
(2395 TT)…………………………..P.12
(3088 TT)…………………………..P.13
(6166 TT)…………………………..P.14
(6414 TT)…………………………..P.15
(8050 TT)…………………………..P.14
Source: IHS
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2013 2015 2017(F) 2019(F)
million US$

2
Basic Introduction
Different with the high homogeneity of PC, most IPC company
have to satisfy customers’ special requirement, such as
customized functional specifications, design and services.
Therefore, the design and testing of new products may take one
or two years. In addition, the solution may involve the customers’
important information, such as security, confidentiality and
business model, so the customers would not pursue the best
performance, and seldom change the supplier. Once the supplier
can satisfy customers’ request, the supplier could continue
deliver the products stably, and the period may be 5 year or even
more. As its products are tailor-made for clients in different
industries, IPC companies can earn higher gross margin, such
as 20%~40%. However, in order to deliver the products stably,
IPC companies have to prepare lots of inventory, and may even
cause overstocked. Because IPC must links and controls the
peripherals systems, compatibility and scalability are necessary
for IPC. Besides, the application environment may be extreme
temperature, humidity, long-term vibration, outdoor and other
conditions, so IPC should also be stable and reliable.
IPC products usually related to
customers’ corporate secretes, so the
supplier could continue deliver the
products stably. In addition, IPC products
are tailor-made. Thus, IPC companies
can earn higher gross margin.
Exhibit 2: Gross Margin of IPC Companies
Source: TEJ
0
5
10
15
20
25
30
35
40
45
50
2011/12/1 2012/12/1 2013/12/1 2014/12/1 2015/12/1
2395 TT (Advantech)
3088 TT (Axiomtek)
6166 TT (ADLink )
6414 TT (Ennoconn)
8050 TT (IBase)
(%)

3
Industry Characteristics
Small Intra-industry Competition
and High Gross Margin
IPC is designed to meet the strict requirements of industrial
automation, such as temperature, humidity, dust-proof, fault-
tolerant, pressure, continuous power supply system and so on.
In order to link many kinds of computer accessories and to fit
various operating environment, IPC must be customized
according to customer demand and customer orders are small-
volume large-variety, which is different with the mass production
of PC. In consideration of the economic scale, most PC
manufactures didn’t enter the IPC market. Therefore, IPC
manufactures could maintain flexible and customized production,
and keep high gross margin.
Small-volume and Large-variety Orders,
Large Fluctuations in Revenue and Stable Chips
The characteristic of IPC industry is customized and small-
volume large-variety orders, so most PC manufactures didn’t
enter the IPC market. Besides, IPC industries’ orders are open
bid, so domestic IPC manufactures usually ship their products
concentrated within six months, and this would cause larger
fluctuations in revenue. Domestic IPC companies’ share capital
are usually 500~700 million, and the chips are stable.
IPC must be customized according to
customer demand and customer orders
are small-volume large-variety, which is
different with the mass production of PC.
Therefore, IPC manufactures could keep
high gross margin.

4
Table 1: Difference between Industrial PC and Consumer/Commercial PC
Difference Industrial PC Consumer/Commercial PC
Market Scale Smaller market scale Larger market scale
Price Sensitivity Lower price sensitivity Higher price sensitivity
Operating Environment
Often in extreme operating
environment
Often in stable operating
environment
Product Lifecycle Longer lifecycle Shorter lifecycle
Design Patterns Mostly customized Mostly standardized
Product Applications Non-commercial and special field Home and office
Purchasing Decision Quality, stability, durability price–performance ratio
Switching Cost Higher switching cost Lower switching cost
Ordering Mode Small-volume Large-variety Large-volume Small-variety
Service Quality
Higher service quality requirements,
and often communicating with
customers
Standardized product after-sales
service
Customer Retention Higher customer retention Lower customer retention

5
Product Categories
In general, IPC products can be divided to 3 categories, board,
subsystems and solutions.
 Board
Board includes single-board computer, embedded computer and
some other products. A single-board computer is a motherboard
which already has all the feature of a computer, and it can link
different peripherals and a variety of professional software.
However, the size of single-board computer would be smaller
than the size of the motherboard used in PC. Embedded
computer can make IPC link more machines, so the size would
be smaller.
 Subsystems
Subsystem means a product that combine single-board
computer, chassis, power suppliers and other peripheral systems
in a workable system, such as industrial servers and
workstations.
 Solutions
Solution is an entire system focusing on specific field, including
the necessary hardware, software and related peripheral
systems.
IPC products can be divided to 3
categories: 1. board, 2. subsystems and
3. solutions.
Exhibit 3: Industrial Computer Categories
Source: stockfeel

6
Upstream& Downstream Companies
The supply chain of IPC industry can be divided into upstream,
midstream and downstream industries. Except for chassis and
some storage devices, most upstream industries are the same
as the upstream industries of PC, such as semiconductor, printed
circuit board, CPU, chip, hard disk drive, power supplier and
other components. In addition, some supplier would establish
special departments in order to meet the needs of IPC. The
midstream industries are generally means IPC industries, and
the products contain input/output devices, single-board
computers, barebone computer products, industrial computer
products and computer peripheral products. Finally, the
downstream industries are System-Provider, dealers and end
users. Because most terminal customers are companies and the
applications of IPC are usually professional, the quality
requirements of IPC are also higher. If exporting to foreign
countries, manufactures have to face different habits, and usually
entrust to local dealers in order to master demands. Besides,
some dealers would increase some software of hardware, and
then sell the value-added products to the system-providers or the
terminal customers.
Most upstream industries are the same as
the upstream industries of PC. The
midstream industries are generally
means IPC industries. Finally, the
downstream industries are System-
Provider, dealers and end users.
Exhibit 4: IPC Industry Chain
Source: MIC

7
Future Perspectives - Industry 4.0
Industry 4.0 creates what has been called a "smart factory". In
the smart factories, cyber-physical systems monitor physical
processes, create a virtual copy of the physical world and make
decentralized decisions. Over the IoT, cyber-physical systems
communicate and cooperate with each other and with humans in
real time. By the Internet of Services, both internal and cross-
organizational services are offered and used by participants of
the value chain.
Four Design Principles in Industry 4.0
These principles support companies in identifying and
implementing Industry 4.0 scenarios.
 Interoperability
The ability of machines, devices, sensors, and people to connect
and communicate with each other by the Internet of Things (IoT).
 Information Transparency
The ability of information systems to create a virtual copy of the
physical world by enriching digital plant models with sensor data.
 Technical Assistance
First, the ability of assistance systems to support humans by
aggregating and visualizing information comprehensibly for
making informed decisions and solving urgent problems on short
notice. Second, the ability of cyber physical systems to physically
support humans by conducting a range of tasks that are
unpleasant, too exhausting, or unsafe for human workers.
 Decentralized Decisions
The ability of cyber physical systems to make decisions on their
own and to perform their tasks as autonomously as possible.
Following four principles support
companies in identifying and
implementing Industry 4.0 scenarios:
interoperability, information transparency,
technical assistance and decentralized
decisions.
Exhibit 5: The Industrial Revolution
Source: wikipedia

8
Three Aspects form The Heart of Industry 4.0
 Integrated Industrial Chain
Because a company can combine every function and link the
entire hierarchy by IoT, it can vertically integrate the industrial
chain. Besides, a company can also link the suppliers, partners,
and distributors in the value chain and transfer data among them
seamlessly, and integrate the industrial chain horizontally.
 Full Automatic Processing
The products and services to be embedded with custom-
designed software, so that they become responsive and
interactive, tracking their own activity and its results, along with
the activity of other products around them. When captured and
analyzed, the data generated by these products and services
indicates how well they are functioning and how they are used.
 Zero Inventory
Closer interaction with customers, enabled by these new
processes, products, and services. Industry 4.0 makes the value
chain more responsive, allowing industrial manufacturers to
reach end customers more directly and tailor their business
models accordingly.
Industry 4.0 would cause integrated
industrial chain, full automatic
processing and zero inventory.
Exhibit 6: Integration Topology for Industry 4.0
Source: WNIPT

9
Industrial Policy of Each Countries
In 2011, Germany proposed the concept of industry 4.0 at
Hannover Messe, the biggest industrial exposition. In addition,
major industrial countries also promote manufacturing-upgrading
policy in order to enhance national competition. Industry 4.0
intelligent manufacturing has become the major topic of
exhibition in recent years, and the core concept of Hannover
Messe in 2016 is it, too.
Since Germany Proposed Industry 4.0,
Countries have Followed Suit
 Korea
Korea proposed “Strategy for Manufacturing Industry's
Innovation 3.0” in June 2014 to encourage the transformation
and development of Korean manufacturing industry. Korea
government expects to invest about US$1 billion to help 10,000
small and medium-sized manufacturing company establishing
intelligent and optimized production processes.
 The United States
The United States proposed “AMP 2.0” in October 2014 to
strengthen the U.S. industry competitiveness by promoting
innovation, protecting the pipeline of human resources and
improve the business environment.
 China
China announced “Made in China 2025” in May 2015. The
government expect to become a manufacturing power within 10
years. The strategies include developing IT industries, high-tech
robot and machine tools, promoting the integration of information
technology and industrialization, and establishing manufacturing
industry innovation center.
 Japan
Japan announced “FY 2015 the white paper on manufacturing
industry” in June 2015. It said that Japanese industries need to
develop the application of IoT and big data.
Germany proposed the concept of
industry 4.0 at Hannover Messe. Then,
Major industrial countries also promote
manufacturing-upgrading policy related to
industry 4.0.

10
IoT: The Next Motivation of IPC Industry
According to the “Markets and Markets”, the market scale of IoT components in 2012 is US$41.38
billion, and the components contain RFID, network communication, data processing, security,
preservation, related support and other technology components. In 2013, it grew to US$52.28 billion,
and the growth rate was 26.3%. In 2014, it grew to US$68.4 billion, and the growth rate also grew to
30.8%. According to the expectation of Markets and Markets, the market scale of IoT components will
grow the US$297.73 billion in 2019, and the CAGR will be 33.9% between 2014 and 2019.
Exhibit 7: Market Scale of Global IoT Component
Source: Markets and markets
Global Corporate Capex
Continues Growing
Divided by the terminal application, more than 50%
IPC productions are used in industrial applications,
so the business and the capital expenditure are
closely related. Semiconductor industry is related to
most 3C products, and it also requires industrial PC
to control the production equipment, so we take the
semiconductor industry's capex as a reference.
According the data from Gartner, global capex in
both 2015 and 2016 is declined, but Gartner also
expect that the global capex will continue growing
in the future.
Exhibit 8: Growth Rate of Global Semiconductor
Industries’ Capex during 2015~2018
Source: Gartner
0
50
100
150
200
250
300
RFID Network
Communication
Data Processing Security & Defense Total
2012 2013 2014 2019(F)
billion US$
CAGR = 29.9% CAGR = 36.4% CAGR = 34.6% CAGR = 35.8%
CAGR = 33.9%
-2
0
2
4
6
8
10
12
2015 2016(F) 2017(F) 2018(F)
Semiconductor Wafer Fabrication
Wafer Foundry Wafer Packaging
%

11
According to MIC’s statistics, the scale of global smart factory will
be US$205.88 billion in 2016, and the yoy growth rate will be
10.2%. Industrial robots and automated production equipment
are the largest part, accounted for 90%.
Exhibit 9: Scale and Growth Rate of Global Smart Factory
The scales of global smart factory
and the market of industrial IoT are
continuing growing.
Source: MIC
Governments promote IoT into manufacturing, cooperate
management and expanding new business opportunities. These
policies would cause the market of industrial IoT growth.
According to Gartner’s estimation, manufacturing and health care
will be the main application of the IoT market, and industrial IoT
will grow at a compounded annual growth rate (CAGR) of 9.6%
until 2020.
Exhibit 10: Scale and Growth Rate of Industrial IoT
Source: IEK
0
5
10
15
20
25
0
50
100
150
200
250
300
2012 2013 2014 2015 2016(F) 2017(F) 2018(F)
Market scale(LHS) Growth rate(RHS)
trillion US$ %
0%
5%
10%
15%
20%
25%
0
20
40
60
80
100
120
140
2015 2016(F) 2017(F) 2018(F) 2019(F) 2020(F)
Market Scale(LHS) Growth Rate(RHS)
billion US$

12
Advantech (2395 TT)
Advantech is one of the top three IPC company in the world. It
owns a brand and its products are sold worldwide. The
application of the products covers medical, entertainment,
transportation, security monitoring, gaming and other fields.
However, the products and business can be approximately
divided into five parts: industrial control, industrial computer,
embedded board and case, industrial applied computer, after-
sale service and other.
Business Development Plan
 Deepening organizational Sector-Lead development
Since the second half of 2015, the existing business units have
been integrated and consolidated into three business groups,
including “Embedded Design-In,” “Industrial-IoT,” and “Smart
City Solutions” to aim at the markets of industrial equipment
manufacturers, industry 4.0 and IoT, and Smart City services
providers, respectively.
 Constructing WISE-PaaS and Wireless Sensor Technology
In response to the need of the IoT generation for prompt and
accurate data retrieving, Advantech grasps the advantages of
Taiwan industry and leverages the existing core competencies to
continue constructing a comprehensive IoT smart cloud platform
in last year.
 Organic and M&A parallel growth strategy
Advantech’s growth sources will be from the organic growth of
the organization and M&A in parallel. The M&A strategy is
executed in a disciplined manner to make up the insufficient key
vertical area of Advantech and to refine Advantech’s M&A ability
through a complete methodology.
Exhibit 11: Proportion of Sales by
Products in 2015
Source: Advantech
Exhibit 12: Advantech IoT Platform Architecture
Source: Adventech
15%
industrial
computer,
23%
embedded
board and case,
41%
10%
11%
industrial control
industrial computer
embedded board and case
industrial applied computer
after-sale service and other

13
Axiomtek (3088 TT)
Axiomtek is a subsidiary of Advantech, a large domestic IPC
company. Axiomtek mainly produce embedded board and
system (EBS), Ethernet products, design and manufacturing
services products (DMS).
Axiomtek Plans to Integrate the technology
 Transport and outdoor computers
Axiomtek will integrate computer computing and industrial
communication technology solutions to develop communication
protocols, industrial converters and remote monitoring
management system. These products will be used in rail
transportation, equipment health clinic, Energy saving, public
works, factory automation and remote monitoring systems.
 Factory automation
Axiomtek provides Vision Control Motion solution. This solution
combined hardware and software to achieve automated visual
identification, which can be used in smart factories, heavy
industry and robot applications.
 Process Automation
Axiomtek develop smart equipment health diagnosis technology
to assist in collecting large sensor data and monitoring the status
of equipment. This would help reducing productivity ineffective
working hours and improving the production process to enhance
effectiveness.
Products in 2015
Source: Axiomtek
Exhibit 14: Axiomtek Focus on Following Application of IoT
Source: Axiomtek
EMS
57%
Ethernet
products
20%
DMS
16%
others
7%
EMS Ethernet products DMS others

14
ADLink (6166 TT)
ADLink start from designing embedded products, and its own
brand ADLink sales worldwide nowadays. ADLink's embedded
products focus on medical and control panels. Medical products
have been sold to Europe, the United States and Japan. In
addition, industrial products are mostly network security and
telecommunications products.
 Strengthen the design and manufacturing management
ADLink imports FMEA (Failure Mode and Effect Analysis) risk
management concept in order to rise the quality of product
design. It also imports components management database to
assist in electing materials in product design phase.
 Expand sales positions
ADLink will increase service base in the EU, the United States
and China to support and service customers nearby.
Products in 2015
Source: ADLink
IBase (8050 TT)
IBase is a leading IPC company, providing industrial computer
OEM / ODM services, and also promote its own brand. The main
product is board, followed by solutions.
 IBase would strengthen the ability of RMA (Return
Merchandise Authorization) and FAE (field application
engineer) to provide intimate products after-sales service.
 IBase would set up more its own factory to strengthen the
ODM/OEM orders capacity.
 IBase would promote CRM (customer relationship
management) project to effectively grasp customer needs, to
enhance customer satisfaction, and to build close
partnership.
Products in 2015
Source: IBase
MAPS
28%
MCPS
33%
ECPS
16%
DMSC
16%
DCPS
5%
MAPS MCPS ECPS
DMSC DCPS Others
Industrial
Motherboards
19%
High-
end
system
product
s
73%
Others
8%
Industrial Motherboards
High-end system products
Others

15
Ennoconn (6414 TT)
Ennoconn's products include POS (point of sale) systems, ATM
systems, industrial control systems, automotive systems,
human-computer interaction products and other peripherals
such as processors, memory and so on. The largest shareholder
is Foxconn Technology Group, and Foxconn hold 42% stocks.
Recently, Ennoconn merged S&T and Kontron and they would
form a "triangular alliance".
Synergy of the M&A
Based on cloud computing and the Internet of Things
architecture, Ennoconn would cooperate with other
manufacturers which have key technologies or components, and
create innovative products and services. Now, Ennoconn has
already merged S&T and Kontron. Ennoconn is good at servers
and data center. It runs the biggest server farms globally. Kontron
has strong customer base, and used to own the largest
embedded market in the past. S&T focus on software. It Leads
embedded software engineering, and owns 1800 East European
engineers. Ennoconn hope that the alliance of Ennoconn,
Kontron and S&T can be among the leaders in IoT, technology
and market share wise, with estimated revenues of EUR 1,5~2
billion in 2018.
Products in 2015
Source: Ennoconn
Exhibit 18: Synergy for Competitiveness
Source: Ennoconn
Industri
al
comput
er, 99%
Industrial computer After-sales service

16
Disclaimer
 These report contain certain forward-looking statements with
respect to the results of operation, financial condition and
current expectation about future events. By their nature,
forward looking statements involve risk and uncertainty
because they relate to events and depend on circumstances
that will occur in the future.
 In preparing the information herein, Collaborator have relied
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20161228 IPC產業

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