The Energy Efficiency Push: Taiwan’s Delta Electronics

The energy efficiency megatrend?

As a result of the many failed bids for alternative energy technologies, the next ten years will be focused on the improving energy efficiency megatrend. Transport accounts for 50% of the world’s liquid fuel use and will consume 60% more liquid fuel by 2035. For the next ten years there is limited scope for substitution out of oil, which means that railway, bus and light transit operators and their manufacturers stand to gain most from improving energy efficiency. Geographically, both China and India will require 60% of the world’s extra energy demands by 2035 and already have pollution problems in their major cities. Conversely in the USA energy consumption will remain 60% higher than any other OECD country. These are three countries which are major drivers of the need to make energy use more efficient. So when seeking to obtain exposure to the energy efficiency push what better way is there than investing in the world’s largest provider of switching power supplies and brushless DC fans. That company is Taiwanese conglomerate Delta Electronics, named after the mathematical variable denoting change as its founder believed this would be fundamental to the company’s success. They manufacture switching power supplies, video display products, telecom power systems, uninterrupted power supply (UPS), variable speed alternating current (AC) monitor drives, high resolution color monitors, projectors, and magnetic and networking components. With its Taiwan-listed shares currently trading at TW$133.50 within a 52 week range of TWD85.10-150 and a one-year return on their shares of 55%, Delta Electronics look like a good investment especially considering their recent diversification efforts as they look to take advantage of the energy efficiency push.

Delta Electronics was founded in 1971. They now have sales offices worldwide and manufacturing plants in Taiwan, China, Thailand, India, Mexico and Europe. Additionally, the company maintains design and engineering teams in R&D laboratories in Taiwan, Hong Kong, North Carolina in the USA, China, and Europe. In 2012, Delta Electronics generated a net profit of TW$19.1 billion (US$643 million). Delta Electronics has been part of the Forbes Asia Fabulous 50 Award for the 50 best-run companies in Asia for many years. They have also been included in a Global Top 100 Low-Carbon Pioneer list compiled by CNBC European Business magazine. As far as energy efficiency is concerned, Delta Electronics started their push as far back as 1979 during the global oil crisis and when it became commonplace for even the lower-middle class to have fridges and air conditioners at home. It was also then that the company shifted from using a linear power supply to what was then Taiwan’s first switching power supply, which was much more efficient. Their company development has focused their mission on providing innovative, clean and energy-efficient solutions for a better tomorrow.

The ubiquitous DC power supply

Whilst they have traditionally focused their business on providing power supply products for IT devices, Delta Electronics have been diversifying into other electronic products so that by the end of 2013 sales of PC-related products will only constitute 20% of total sales. Their recent 2012 Q4 earnings of TW$2.75 billion (US$126 million) beat analyst estimates of TW$3.55 billion. Their earnings reports recently suggest their operating margins are rising simultaneously with diversification into different products, productivity gains and increased automation. All these factors are helping to boost Delta Electronics’ future profitability and thereby its share price, despite some price pressure from customers. But this speculation is built on a sound foundation of R&D into improving the energy efficiency of electronic appliances. In recent years, they have developed high-density and high-efficiency telecommunication power systems, UPSs with advanced interfaces, computer networking components and products with high software content, and microdisplay PTVs. The company also developed the world’s first titanium-level power supply for large servers, a development which garnered orders from Amazon, Google and Facebook. In particular, Delta Electronics’ automation department has been a key driver in the company’s growth. They were the first Taiwanese company to apply surface mount technology in 1985. They have also developed equipment used both in their plants worldwide as well as sold to clients, including thin film and thick film transmission systems, material flow and warehousing systems, production systems for LAN components, switching transformers, chip inductors, visual inspection applications, semiconductor equipment, fiber optics processing machines, and auto-warehousing systems. Delta Electronics recently established a new business division focused on running “plant factories” in areas that have poor farming conditions. This is one example of their push to diversify into a variety of different products with the agricultural market holding their interest due to the concern on global climate change, shortages in the agricultural labour market and use of pesticides. They plan to use plant factories to find innovative methods of facilitating plant growth by using computer systems to measure temperature, humidity, sunlight and wind force. Delta Electronics is also launching a new power supply product for medical X-ray generators in 2013, on the back of last year’s successful entrance into the medical imaging equipment market.

Asia leading the way with new agriculture - plant factories

This is a great company to invest in for the next few years as they continue their diversification into various electronic products based on their traditionally strong IT equipment. Furthermore their Chinese connection should also help keep orders for their products buoyant. So invest in the new megatrend of improving energy efficiency by buying into this Taiwanese giant.