Taiwan in talks with foreign tech firms on cloud data centers

Taiwan's government hopes foreign technology firms will build their Asian cloud computing centers on the island, and it is wooing firms including social-networking giant Facebook Inc. with incentives such as lower tax rates and cheaper land, Technology Minister Simon Chang said in a recent interview.

Foreign companies have been building data centers in Asia in recent years, but they have been slow in building cloud-computing facilities in Taiwan. The government hopes to entice these companies to build such facilities on the island, as part of efforts to help domestic technology companies move toward value-added services from contract manufacturing.

"Our favorable geographic location can place technology companies in close proximity to most of the Asian markets. Our land cost is also relatively lower compared to other developed Asian countries such as Hong Kong," said Chang, who was appointed in February to oversee the island's science and technology industry.

The government will take the lead in introducing cloud computing projects, which will help create demand and nurture local application developers. Once the successful local application developers grow to a certain scale, they can expand into overseas markets," he added.

Cloud computing refers to running applications and accessing data stored remotely using a network such as the Internet.

The push to attract foreign companies to establish data centers is part of the government's ongoing efforts to help the local technology sector move toward a more value-added and service-based business model from hardware contract manufacturing, Chang said. He declined to elaborate on the incentives that Taiwan is offering to potential investors.

"It's tough for Taiwan's hardware contract makers because big brands like Apple dominate the profit distribution," he said."We can't change the industry structure overnight, but we encourage local technology manufacturers to develop more high-valued patents and software applications."

Internet companies such as Google Inc. and eBay Inc. as well as hardware makers such as Intel Corp. have in recent years built data centers across Asia, attracted by robust growth in Internet traffic in the region and demand for mobile access to data from anywhere thanks to the rising popularity of smartphones, tablets and electronic books. However, few of the data centers. are in Taiwan. Last week, Google broke ground on its first data center in Taiwan, which is its third in the region.

Analysts said they believe Chang, who was Google's head of Asia-Pacific Hardware Operations prior to his appointment as Taiwan's technology minister, will enable Taiwanese firms to move up the technology sector's value chain.

Although Taiwan's HTC Corp., Acer Inc. and Asustek Computer Inc. are among rising global brands, the island's economy still relies heavily on contract manufacturing and assembly.

Contract manufacturers' profit margins are narrowing because retail prices of mobile devices fall very quickly due to competition. In 2010, Hon Hai Precision Industry Co's gross margin fell to 8.2% from 9.5% the previous year, because of rising production costs and intensifying competition.

Barclays Capital estimates Hon Hai's gross margin will continue to drop to 7.7% in 2011 and 7.5% in 2012, analyst Kirk Yang said in a recent report. Chang also said the government has no plans to divest its 30% stake in Chunghwa Telecom Co.(2412.TW), the island's largest telecom network operator by revenue.