The global smart manufacturing market is expected to welcome a golden period of growth across five years, starting with annual revenue of US305 billion in 2021 and surpassing US450 billion in annual revenue in 2025 at a 10.5% CAGR, according to TrendForce’s latest investigations. This growth can be attributed to several factors, including the accelerating digital transformation efforts from enterprises, the increased demand from industrial automation and WFH applications, and the emergence of 5G, advanced AI technologies, and other value-added services.

Looking ahead to 2022, TrendForce believes that the outlook of smart manufacturing has evolved from such conservative strategies as improving the resilience of the manufacturing industry itself, to increasing the industry’s production capacity as well as efficiency while reducing both energy expenditure and carbon emissions. These advantages are expected to serve as the main drivers propelling the growth of the smart manufacturing market next year.

Smart manufacturing development will revolve around 5G, edge computing, and carbon footprint reduction going forward

The core feature of smart manufacturing lies in its ability to deliver instant feedback through the integration of virtual data and real, physical equipment. Hence, low latency, high security, and fast computing power have become increasingly important for smart manufacturing development, which will revolve around edge computing and 5G applications, including AR/VR, machine vision, digital twins, and predictive maintenance, all of which will experience considerable upgrades in functionality thanks to smart manufacturing.

Furthermore, as the issue of global warming gains more and more media coverage, 137 countries have now committed to achieving carbon neutrality. This pursuit of environmentally friendly outcomes is also reflected in the current state of industry 4.0 development. For instance, companies including Henkel, Johnson & Johnson, Siemens, and Tata Steel all operate manufacturing facilities that qualify them for membership in WEF’s Global Lighthouse Network. The aforementioned companies have ensured their facilities operate with optimized energy consumption, highly effective manufacturing processes, and reduced carbon emissions through the adoption of computer simulation/modeling and smart management. TrendForce expects the future design of smart manufacturing equipment and factories to center on the use of environmentally friendly IoT technologies.

Taiwanese manufacturers are likely to seize shares in the niche market in light of the rise of domestic micro-factories

It should be pointed out that the Taiwanese manufacturing industry possesses certain competitive advantages in the global market, including a highly consolidated supply chain, a relatively comprehensive smart manufacturing value chain, and the ability to deliver highly customized solutions. In particular, various Taiwanese manufacturers specialize in full-service, integrated smart solutions that feature equipment health monitoring and machine vision functionalities, thereby significantly lowering the barrier for adoption. Assuming that the domestic industry is able to continue leveraging their existing competitive advantages and furthering their current developments, TrendForce expects micro-factories to become the key factor through which Taiwanese companies can find commercial success in the global smart manufacturing industry.

Although the smart manufacturing value chain has historically had its various verticals spread throughout the world, recent trends such as a return of domestic manufacturing and tectonic shifts in the manufacturing industry have resulted in the rise of shortened supply chains as well as localized operations. These developments have led to the recent surge of micro-factories. TrendForce’s investigations indicate that, in addition to their high degree of automation and analytical accuracy, micro-factories deliver improved manufacturing outcomes while minimizing resource consumption and yielding such benefits as a flexible supply chain, lean human resources, and low initial cost. Micro-factories have already seen widespread usage in the global automotive and electronics industries in light of these benefits. Likewise, TrendForce believes that Taiwanese manufacturers of bicycle chains, steel nuts/bolts/screws, and suitcases will likely succeed in their respective niche markets by upgrading their manufacturing operation with micro-factories.

The arrival of the COVID-19 pandemic last year prompted enterprises to accelerate their digital transformation efforts. As such, the year 2020 marked the turning point for the AR/VR industry, with an increasing number of global enterprises now paying close attention to AR/VR headsets and applications. Two such applications which show the most significant short-term growth are “virtual collaboration platform” and “remote support”, particularly in the relatively small-scale AR headset markets.

TrendForce indicates that annual AR headset shipment is expected to increase from 580,000 units in 2020 to 1.3 million units in 2021; on the VR headset front, annual shipment is expected to increase from 4.43 million units in 2020 to 5.65 million units in 2021, with the key enablers of these shipment growths being entertainment applications from the consumer side and commercial applications from the enterprise side.

It should be noted that, however, as VR headsets have lower prices and technical barriers to entry compared to AR headsets, many companies are opting to purchase consumer VR headsets for use in commercial applications. Despite the growth of the AR/VR headset market in recent years, the ongoing shortage of semiconductor components is expected to put some downward pressure on these headsets’ shipments this year.

Enterprise demand is the primary driver of telecom companies’ efforts to combine 5G with AR/VR applications

With remote commercial applications generating an increasing demand for AR/VR headsets, use cases such as remote interaction and real-time sharing of 3D objects will require an enormous amount of network bandwidth. Likewise, the demand for low-latency and smooth user experiences will continue to drive 5G demand from the commercial sector, thereby compelling major telecom companies such as Ericsson, China Mobile, NTT DoCoMo, and Chunghwa Telecom to release dedicated 5G plans geared specifically for AR/VR applications in order to ensure the highest quality connections for these applications.

For telecom companies, building 5G infrastructure demands an enormous cost, but the current use of smartphones is unable to completely saturate the total 5G bandwidth. In other words, telecom companies are unable to recuperate their 5G investment costs, and this predicament is what led them to seek out other applications/products that can potentially make use of 5G connectivity, such as IoT, video streaming, and AR/VR.

What should suppliers that aim to enter the AR/VR markets pay attention to?

TrendForce believes that suppliers wishing to enter the AR/VR markets must take into consideration two factors, which are “cost” and “profit distribution”. First of all, both AR/VR headsets and dedicated 5G connections require enormous investment costs. Most companies involved in these applications are therefore still in the small-scale trial period at the moment.

Given the limited funding that these companies are allocating, real-life user experience has suffered as a result, leading to a reduced willingness by potential clients to continue adopting AR/VR solutions going forward. For instance, if network infrastructures do not provide sufficiently comprehensive coverage or sufficiently high bandwidth, the resultant latency or signal loss can lead to poor remote collaboration experiences on the user side.

The second issue that suppliers must confront has to do with profit distribution. Most AR/VR solutions are provided to users at a flat subscription fee which covers the costs of AR/VR headsets, 5G network connections, and software platforms. This type of flat fee structure is attractive for customers as it is relatively simple and straightforward.

However, on the supply side, the fair distribution of profits among AR/VR headset suppliers, telecom companies, and software platform vendors remains a critical issue. In particular, since AR/VR headsets and 5G networks are all extremely costly, along with the fact that the 5G rollout is still in its infancy, unfair distribution of profits can potentially lead to certain suppliers being unwilling to participate in the AR/VR market in the long run.

（Cover image source: Unsplash）