Taiwan Sees Sunny Future in Cloud Computing

The government of Taiwan is vigorously working with the island's information and communications technology (ICT) sector on strategies to facilitate the development of cloud-computing industry. The emerging industry has been singled out as an area that could fast-forward the island's ICT sector into a leading provider of system-integration services incorporating software and hardware.

Cloud computing is a cost-effective alternative for delivering computing power to organizations over the Internet. Computer hardware, software and information are provided online based on demand, like electricity, and service is charged by usage. Some analysts figure that cloud computing can save a company of 200 employees about 30% on software expenses.

Late last year, the United States Federal Government launched the Apps.gov, a cloud-computing application site, which is a major feature of the Obama Administration's initiative to cut down operating costs while boosting government efficiency. The federal government is estimated to be able to save US$75 billion by offering administrative services via the cloud site.

Government Support

Taiwan's government-backed Industrial Economics and Knowledge Center (IEK) estimates that the global market for cloud applications and services will top US$160 billion in 2015. The Executive Yuan, Taiwan's Cabinet, projects the island's cloud-computing industry will generate revenue totaling NT$1 trillion (US$31.2 billion at US$1:NT$32) and create 50,000 jobs in 2014.

The Executive Yuan therefore has designated cloud computing as a flagship among four smart industries to be developed aggressively over next few years. It also has earmarked NT$24 billion (US$750 million) to fund the industry over the next five years, eventually hoping to attract an estimated NT$100 billion (US$3.12 billion) in private investment to the sector. In the long run, the government hopes its policy will help position the island's cloud-computing industry to supply total solutions and integrated systems around the world.

The government-supported Industrial Technology Research Institute (ITRI) has opened Cloud Computing Research Center in collaboration with the island's ICT manufacturers to push development in this area.

Dr. Chiueh Tzi-cker, the head of the center, notes that the center is dedicated to developing cloud software, hardware and application services. He says that ITRI will establish a container data center, which will be installed with a total of 2,000 servers and related cloud equipment.

The government's first step to materialize its cloud policy is "Government Cloud" or "G Cloud" plan, which will provide contracts to local manufacturers to help them foster cloud computing capability. "G Cloud" will offer applications associated with small and medium-sized enterprises (SMEs), medical services and healthcare, homeland security, online education, digital content, tax, electronic invoice, trade, and finance services. Applications will be stored in "container data centers," which eliminate the need to download memory-consuming applications to end-user devices like desktops, laptops, and handheld gadgets.

Senior government officials note that Taiwan is strong in manufacturing cloud-computing infrastructure equipment, including data centers and servers as well as customer-premise equipment like handheld gadgets. Its main deficiency is the lack of a field to test product integration.

Under the plan, the Cabinet will combine the information systems of over 4,000 government organizations around the island into two to three data centers. Also, the Ministry of Economic Affairs (MOEA) is assessing the feasibility of opening one such center each at the Hsinchu Science Park, Central Taiwan Science Park and Southern Taiwan Science Park.

Senior government officials pointed out that South Korean and United States governments have combined information centers in all government organizations across the two countries into two to three centers and are equipping these centers with cloud-computing capability to cut software leasing costs.

Industry watchers estimate the G Cloud plan to spend at least NT$10 billion (US$312 million) on equipment although senior government officials say the government has yet to determine the investment capital.

Cloud Computing Alliance

An alliance of 65 Taiwanese manufacturers is planning to co-organize a private company to vie for contracts under the ambitious project. The alliance was launched on April 7 with coordination by ITRI. Alliance members include Wistron, Quanta Computer, Inventec, Accton Technology, Chunghwa Telecom, Far EasTone Telecom, and Taiwan Mobile.

Chairman of the association and concurrently chairman of Chunghwa Telecom, S.J. Lu, stresses that the ultimate goal of the planned company is to export cloud-computing total solutions although the G Cloud plan. Citing MOEA figures, Lu says that development of a cloud-computing platform could help Taiwan's ICT software sector realize revenue of US$50 billion in 2014, up from US$20 billion in 2009. The local ICT hardware industry is expected to grow to US$369.9 billion in 2020, helped by the cloud computing wave.

Lu says Chunghwa, Taiwan's No.1 telecom carrier, will help the government foster Taiwan's cloud-computing industry with its Internet Data Centers (IDCs) across Taiwan. The company is building a center in Banqiao, Taipei County.

His deputy at the association, Inventec Corp. Chairman Shiqin Li, expects Taiwan to ship its first integrated cloud-computing system by the end of this year. Insiders of the Taiwan industry estimate that the United States or mainland China would be Taiwan's first export destination.

Li says his company plans to co-open a cloud-computing company with IT hardware and software manufacturers to tap into the emerging sector, with a preliminary goal to ship integrated systems by the end of this year. He adds that the company's cloud-computing R&D center at its Taoyuan factory has started operations. The company's next step is to open an NT$100 million (US$3.1 million) test center to inspect cloud-computing hardware and software.

Li says that his company's strength in cloud-computing business is its server manufacturing, which is now Taiwan's No.1 with a market share of 35%. "Developing cloud computing is the centerpiece of our deployment over the next 10 years and server manufacturing will form our main core strength," he says.

Containing Costs

Li points out that a container data centers are at least 20% cheaper than traditional data centers to build and operate. A container cloud computing center, he adds, can house 576 servers, 14 10G connectors, and 1,200 hard discs to serve a company of 3,000 workers. He says his company is developing next-generation data center, which he says is more energy efficient than the first generation centers.

Asustek vice president Jonathan Tseng says his company will focus its cloud computing efforts on remote storage banks, terminal devices, system equipment and software. He notes that the company, a world leading contract supplier of laptops, is offering online services through its eCarme Technologies Inc. to help people store and exchange digital information, a step towards setting up the company's cloud-computing capability.

Quanta Computer, the world's No.2 contract supplier of laptops, has entered into alliance with Chunghwa Telecom to set up a cloud-computing platform for enterprises and will open a cloud-computing company at yearend to sell the applications.

The enterprise cloud-computing platform, Quanta's vice president, T.J. Fang stresses, will not only provide applications to Taiwan's 80,000 manufacturers but also to the millions of manufacturers in mainland China. He adds that the platform's applications may be bundled with Quanta's servers and storage equipment or even as total solutions.

Currently, Quanta's enterprise cloud-computing applications will at least include enterprise resource planning (ERP), supply-chain management, work-process management, provision of software crucial to product designs, and emergency response centers (ERCs).

According to Fan, Quanta has been involved in cloud-computing development for some time and sees the new IT sector as a chance to evolve into a software-service provider from a hardware manufacturer. "Quanta has established an R&D center to develop application software and expects cloud computing to bring it another NT$1 trillion [US$31 billion] of revenue after notebook-computer production," he says. He stresses cloud-computing application software can help small and midsize businesses slash software licensing fees.

In addition to Chunghwa, Quanta says it will not rule out the possibility of teaming up with other Taiwanese carriers and mainland China's telecom carriers to develop and provide application software on cloud-computing platforms to SMEs in the mainland. Fang says his company has approached Taiwan's Far EasTone Telecom and Taiwan Mobile as well as the mainland's China Mobile and China Unicom.

Quanta will launch e-consultation systems based on cloud computing technology in cooperation with Far EasTone to provide consultation and advice on international financial reporting standards for local companies in the future.

The bright outlook of cloud-computing market has also convinced Chunghwa, Far EasTone and Taiwan Mobile to jump on the bandwagon.

Priming the Pumps

Chunghwa Telecom plans to spend NT$13 billion (US$406 million) on building an Internet data center (IDC), which it says is the largest one in the greater China region, in the next three years. It also teamed up with Microsoft in April this year to launch its first cloud-computing application service.

This year, Chunghwa will spend around NT$3 billion (US$93.7 million) to buy routers, severs, and switchers, according to vice president of the company's Internet service provider (ISP) subsidiary Hinet, B.H. Liu.

Liu says his company has approached the island's leading server suppliers including Quanta Computer, Delta Electronics, Inventec, and Hon Hai Precision Industry as well as contract manufacturers of storage equipment over procurement deals.

Chunghwa will replace the operating servers at its offices around the island with cloud-computing servers and has designated Hinet to offer leasing applications based on cloud-computing technology.

Although Hinet's executives concede that it will takes three to five years before cloud-computing market to takes off, Chunghwa needs to ready all gears before the market takes shape.

Taiwan Mobile is cooperating with Fubon Financial Group to build an extensive cloud computing network for their respective subsidiaries. According to institutional investors, the network will cost billions of NT dollars. Also, Taiwan Mobile's subsidiary, Taiwan Fixed Networks Corp., will ally with Hon Hai Group and ITRI to step up development of the cloud computing industry in Taiwan.

Far EasTone has been in talk with HP, IBM, Quanta Computer, Data Systems Consulting and related software developers on formation of an alliance, in which the telecom company pledges to build a cloud computing platform in exchange for other members' promise to supply needed software and hardware for the platform.

Far EasTone's parent company, the Far EasTone Group, has decided to convert a telecom-technology industrial park still under construction in Taipei County into a cloud-computing hub in Taiwan and open seven Internet data centers around the island as part of its cloud computing plan.

Dubbed as "Tpark," the park will start to offer facilities by the end of this year mainly to manufacturers of third-generation and fourth-generation mobile phones. Ericsson, Nokia-Siemens and Alcatel-Lucent have reportedly expressed interest in setting up operations in the park.

The 24.45-hectare park is about the size of 493 NBA basketball courts and will cost the group around NT$10.5 billion (about US$328 million) to develop.

The telecom-service provider will move its operation headquarters to the park from a science park in Taipei City, where it will set up laboratories and test fields for 2G, 3G, WiMAX, TD-SCDMA, TD-LTE and LTE cellular systems using cloud computing technology.

Microsoft on Board

Taiwan's strength in developing the cloud-computing industry convinced Microsoft to open a Software and Service Excellence Center (SSEC) in Taiwan, its first on the island and fourth in the world, in early June. Microsoft will work with the first batch of Taiwanese tenants in the center, including Quanta, Inventec and Delta Electronics, to develop new generation of cloud servers.

Steve Guggenheimer, corporate vice president of the Original Equipment Manufacturer Division at Microsoft Corp., announced at the official opening of the center that the center's objective is to advance the potential of cloud computing across devices, in the datacenter and within new industries - all topics Microsoft CEO Steve Ballmer addressed when he visited Taiwan last year.

"The opening of the center is a significant milestone for Microsoft and its hardware partners in our collaboration for the development of additional business opportunities in the era of cloud computing," said Guggenheimer.

Microsoft expects more than 100 Taiwanese ICT companies to join the center in developing cloud computing solutions over the next three years.

Microsoft's server technologies now run 75% of the world's X86 servers to help hardware manufacturers build container solutions in support of cloud computing. Its MS Office2010, featuring application of cloud computing technology and optimized compatibility with Windows 7, is very likely to fuel demand for cloud-computing applications.

HGiga Inc., a leading provider of e-mail service in Taiwan, has recently signed a pact with B2B service provider Shandong Peony Technology of mainland China to co-provide cloud e-mail application in Shandong Province, marking the first cloud cooperation case between Taiwan's and the mainland's providers.

The central government will discuss how many data centers it will build in July or August this year. Barry Lam, Quanta Computer's chairman, suggests one center each in northern and southern Taiwan and both should be built near nuclear-power plants "since the centers are relatively energy consuming."

He also suggests that constructions of the centers be completely invested by the private sector and users of all cloud applications, whether the government or the private sector, simply pay for the applications they use.

Senior MOEA officials respond that in terms of prioritization location should be placed behind land cost, electrical rate, climate, earthquake frequency, and electrical grid coverage.

Security Concerns

W.N. Jan, a senior consultant and director general of Market Intelligence and Consulting Institute (MIC), categorizes the cloud industry chain into service provision coupled with transmission and service equipment. "MIC's viewpoint is that service provision involves bigger business opportunities and its business model emphasizes offering services on the Internet. Accordingly, information security will become a top concern in cloud applications," he notes.

MIC's surveys, Jan says, show that Taiwan's enterprises still are hesitant to embrace cloud services all because of security concerns. "CIOs and CTOs are reluctant, or even opposed, to using cloud services," he stresses. To fix the issue, the Legislative Yuan, he says, is revising an act associated with protection of computer-processed personal data to regulate all enterprises holding personal data.

Tony Tsao, chief executive officer and president of D-Link Corp., a world leading supplier of network-communications equipment, says that Taiwan's disadvantage in developing cloud industry is its weak software industry. "So, Taiwan's cloud-application providers must work with international software developers," he suggests. He adds that Taiwan's software industry is weak because of the small size of the domestic market. "We can create a much bigger market for our software industry by combining the Taiwan and mainland Chinese markets," he says.

Patrick Wang, director of sales and marketing division of Promise Technology, Inc., a world leading provider of RAID (redundant array of independent disc) storage solutions, points out that cloud applications have become viable mostly thanks to broader Internet bandwidth and the falling cost of storage services, allowing IDCs to provide less expensive, speedier services. "Cloud service providers need fast and cost-efficient storage architectures so attract users to their services," he stresses. He notes that terabyte-grade storage discs have replaced gigabyte-grade discs, helping facilitate the development of cloud industry. (June 2010)