In my research and investing I stress three things: people, structure, and value. I look for companies that are controlled and managed by quality people, have corporate structures that align minority and majority shareholder interests and trade at valuations that are below fair value if not outright cheap.
This post is about people, namely Matthew Miao and the Miao family. It’s due to his pioneering and entrepreneurial efforts that Taiwan has become one of the world’s leading producers of high-technology products.
Surprisingly there’s very little written in English about the Miao family. In fact my introduction to him was through an investment in Istanbul listed Arena Bilgisayar Sanayi ve Ticaret SA (Arena). Arena is a subsidiary of Mumbai listed Redington India Ltd, whose largest shareholder is Taiwan-listed Synnex Technology International Corp. All three are among the largest IT distributors in their respective regions.
US consumers and investors may have heard of their North American operation, Synnex Corporation, the third largest tech products distributor in North America as well as the second largest “CX’, or ‘customer experience’ company. It’s ranked 130 on the Fortune 500 list with sales of over USD23b in 2019 (see here). Synnex Coropration’s shares have been traded in the US since 2003.
While there’s not much written in English about them, the Miao family is well known in Taiwan. Group head Matthew Miao kindly wrote two autobiographies and there’s at least one other book on him and the group. Matthews’s father, and the clan’s patriarch, Miao Yu-Siou, was known in Taiwan as the ‘Flour King’.
My Chinese is pretty bad so the very capable Cindy Wan (萬庭瑋) did the heavy lifting reading three books on the group. She also helped map their holdings and did extra work on the history of this very interesting business group and family.
Before TSMC This article is the combination of Cindy’s research on Synnex-MiTAC group and the review of the three books she read about the group: Win-win Strategy— The Story of Miao Feng-Chiang’s Strategic Alliances (雙贏策略—苗豐強策略聯盟的故事), Chess Game Win-Win— Miao, Feng-Chiang’s Global Strategy (棋局雙贏—苗豐強的全球化策略) and MiTAC Inc—The Story of a Pioneer in Taiwan's Computer Industry (大顯神通—台灣電腦業開路先鋒的故事). Yours truly added some additional insight and is responsible for any mistakes or inaccuracies herein.
The books’ main focus is the origin and early development of Synnex-MiTAC Group, a Taiwan-based conglomerate, which represents the interests of the Miao Family. Gradually transforming into a technology-centric, albeit diversified group, the family’s initial company was a wheat milling and flour processing business. It was not until Matthew Maio started a business in the technology industry that the group expanded into technology. It is now one of the world’s largest distributors of technology products.
From Shandong Flour to Silicon Valley High Tech The group could just as easily be referred to as the Lien Hwa group. Lien Hwa was established by Matthew Miao’s father Miao Yu-Siou (苗育秀). Born in 1919 in Shandong he was involved in the flour and barley processing industry in Qingdao and Yantai before joining the 1949 KMT retreat from the Mainland at the end of China’s civil war. He founded Lien Hwa to mill flour and rice in 1951. It grew into one of Taiwan’s largest flour mills and today has a market share of over 20%. Yu-Siou actively promoted flour as a substitute carbohydrate to rice in Taiwan. By the time of his passing in 2004 he was locally known as, “The Father of Flour”, or “Flour King”. He was one of the prominent entrepreneurs in Taiwan’s early business circles and appears to have had a good relationship with the government which was extremely important during Taiwan’s long period under martial law (1949 to 1987).
Not all rich kids are playboys His father’s thriving flour business meant that Mathew Miao was born in a well-to-do family. This meant that he could study abroad – a luxury now but even more so in 1960's Taiwan. He went to high school in Hong Kong and later the University of California at Berkeley, where he graduated with a bachelor degree in electrical engineering. One of his first jobs was at Intel, which in 1971 was a small start up where he rubbed shoulders with tech legends such as Andy Grove and Gordon Moore. He later got an MBA from Santa Clara University.
Family calling Matthew moved back to Taiwan in 1976 to work for Union Petrochemical Corporation (UPC), in which family company Lien Hwa was a large investor.
Before leaving the US he asked for exclusive distribution rights for Intel microprocessors in Taiwan. However, these had already been awarded to MiTAC Inc, a start-up Taiwanese company founded by Hou Qing-Xiong (侯清雄) and Lee Chen-Ying (李振瀛), electrical engineering classmates at the island’s top university, National Taiwan University. The two had invested NTD50 thousand respectively and got another NTD1.9 million from a family friend of Hou Qing-Xiang who owned an animal feed milling plant.
Originally established to distribute computers and perform systems integration work, MiTAC started to sell Intel’s microprocessors in Taiwan in 1975. At the time it was just a tiny team with about 12 employees and a total capital of NTD2 million, struggling to survive in an era when few people knew about computers, let alone microprocessors.
Sensing a good opportunity, Matthew sold his Intel shares and along with family money, invested USD150,000 in the struggling MiTAC. He became its largest investor, assumed the role of Chairman and oversaw management and financial planning. Matthew came with a lot of skills and experience. He had cutting edge technical knowledge and hands-on experience and relationships from his days at Intel. He also had an international background and outlook and, through family connections, a good relationship with Taiwan government officials. The MiTAC founders specialized in senior roles. Hou Qing-Xiong was responsible for business development, human resources and training. Lee Chen-Ying, was in charge of marketing and sales.
Taiwan's Pioneering Tech Company MiTAC is likely the very first computer company in Taiwan – or at least one of the few that survived and is still around to claim bragging rights to being the first.
Like other startups, MiTAC did many things in its early days. It developed chips for various products such as washing machines, air conditioners and chemical factories. The company collaborated with Taiwan’s highway department to automate traffic systems and build highway display boards. It also made electronic systems for Taiwan’s growing agricultural industry. This included automating pig auctions and grain inventory. MiTAC computerized local consumer goods giant Uni-President’s payroll process and invented the world’s first Chinese computer interface, which was used by Taiwan’s tax, police and other government departments.
MiTAC continued to expand in the 1970s and 1980s before settling into three main business line more-or-less organized into three companies. Systems Integration remained under MiTAC, computer manufacturing under MiTAC International and technology distribution under Synnex.
Overcoming hardship The group didn't always have a smooth path. As Taiwan’s tech industry grew it lost several early managers and employees to a talent shortage which occurred in the early 1980s. Foreign technology companies poached some of MiTAC’s best employees. It was a great loss for the company at that time.
One way to overcome the talent shortage was to recruit outside managers, which the group started to do in the mid-1980s. But things didn’t work out as they expected. According to the book, 大顯神通—台灣電腦業開路先鋒的故事 (MiTAC Inc--The Story Of A Pioneer in Taiwan's Computer Industry), the new managers had little understanding of both the group’s culture and the personal computer market in Taiwan. They were also not ready to be the hands-on, roll-up-their-sleeves guys to get things done like Matthew Miao and the older managers. The incident led Matthew Miao to place more emphasis on keeping and promoting from within rather than recruiting from outside.
Another crisis the group encountered also occurred in the 1980s. It was the era when the video gaming industry was booming in Taiwan. One of MiTAC Inc’s subsidiaries, Synnex Technology International, a distributor of electronic components, was selling many of its products to electronic game manufacturers. Reports of teenager addiction and their use in gambling led to harsh criticism and they were banned in the early 1980's. Many of Synnex's customers as a result and its debt load skyrocketed. Fortunately, MiTAC Inc at that time had already built a strong foundation and was able to help its subsidiary survive the crisis.
Stucture The Synnex group has a large number of corporate entities. We counted over 400 companies, subsidiaries and associates in MiTAC-Synnex related firms.
In Taiwan the three main companies are Lien Hwa Holding, MiTAC Holding, and Synnex Tech International. The group’s original company, Lien Hwa Holding still mills flour and also oversees most of the group’s non-tech related businesses including petrochemicals and specialized industrial gases. But like virtually all companies in the group, it also has some tech businesses, which in Lien Hwa’s case includes its domestic system integration business. MiTAC Holding mostly holds the group’s manufacturing businesses including computers, fasteners, magnesium alloy and other technology products. Synnex Tech International is its holding company for the group’s vast electronic components distribution business. It has subsidiaries in India, the Middle East, Turkey and South-East Asia.
Outside of Taiwan the group’s key asset is it’s 10.2% stake in Synnex Corporation, which is its largest company by market capitalisation and revenue. At the end of June 2020 it’s USD5.8b accounted for 43.3% of the group’s total market capitalisation, and its USD24b in revenue last year made it the 130th largest company on the Fortune 500 list of the largest companies in the United States (see here). Synnex Corporation has two key businesses which, as this is being written, are due to be separated. Its electronics distribution business covers the parts of the world that its Taiwan-listed subsidiary does not: the Americas, Europe, Japan and South Korea. Its customer experience / digital services business is under Concentrix.
Complex in Taiwan. Simple Outside. Although not highlighted in the books Cindy read, she found that Synnex’s Taiwan entities appear to have a complex holding structure, particularly in the ownership and cross shareholdings of its eight Taiwan listed entities (see ownership structure below).
There are also many instances where we were unable to determine ultimate control of certain companies. The paper trail from our cursory research effort went dead. There is also substantial overlap among group companies with several engaged in the same business, albeit in different locations.
This contrasts with the straightforward structure of its overseas subsidiaries and associates.As seen below, Redington's corporate structure, which is copied from their 2019 annual report, is relatively straight forward.
Mr. JV. Taiwan’s local press many times refers to Matthew Miao as “Mr. Joint-Venture”, or “JV King” as many companies were acquired or started as JV’s. He believed that multinational strategic alliances embodied his idea of “make full use of limited resources and do unlimited business.” For example, Synnex Tech International was established as a joint venture in 1988 between MiTAC group and Lex Services, a UK company that began life as an automobile factory, eventually becoming one of the largest distributors of electronic components and computer systems in Europe. The predecessor of Linde LienHwa, BOC Lien Hwa Industrial Co., Ltd., was founded in 1985 as a joint venture between Lien Hwa Industrial Corporation and UK's BOC Group Plc., one of the world’s largest industrial gas suppliers. GeTac Technology Corporation was established as a joint-venture between the group and GE Aerospace (50%-50%).
This pattern continues into the 2000's. Between 2001 and 2018, the US-listed Synnex Corporation made 23 acquisitions of companies outside of the group.
According to Cindy, the two books written by Matthew Miao are fairly similar. They illustrate how Mathew Miao led the conglomerate to grow from a scrappy, local personal computer manufacturer and software developer, to a global electronic component distribution and technology powerhouse.
Despite being written 17 and 22 years ago, the two autobiographies provide lots of details that are germane to the group’s history. They also give a personal viewpoint of the inception and growth of Taiwan’s very successful and world-leading technology industry. Taiwan and its nascent technology industry were very different in the 1970's and 1980''s when there was no Internet or smartphones.
His autobiographies also allow readers to have a better understanding of how Mr. Miao guided the group’s growth. Like other autobiographies, it’s more than likely biased toward the positives. However, Cindy feels they are still worth reading to get a better idea of how the companies within the group evolved.
The third book, MiTAC Inc--The Story of a Pioneer in Taiwan's Computer Industry, (大顯神通—台灣電腦業開路先鋒的故事), was written by Tan Zhong-Min (譚仲民) in 1995. Mr. Tan was a Commercial Times reporter who focused on the information technology industry. Cindy thinks it makes a good complement to Mr. Miao’s two autobiographies. She believes it’s more objective and unveils the story of several important founding members of Synnex in addition to Mr. Miao.
Some of them are still key people within the group, such as Su Liang (蘇亮), Du Shu-Wu (杜書伍) and Francis Tsai Feng-Tsu (蔡豐賜). Su Liang was especially good at programming in the early days and currently holds several senior positions in group companies including the Chairmanship of MITAC Information Technology Group. Du Shu-Wu mainly took charge of the electronic component’s distribution segment. He’s now the President of Synnex Technology International Corporation, and holds other board and senior positions in group companies. Francis Tsai was in charge of the operation of MiTAC International and now holds several senior titles in the group including Chairman of Waffer Technology Corp.
Of the three books Cindy prefers the later autobiography and the more objective group history by Mr. Tan, the Commercial Times reporter. She thinks together they provide thorough insight into the conglomerate from both an inside and outside point of view.
Many thanks to the Mr. Miao for sharing his life story and also to Mr. Tan for writing about the group. Most of all thanks to Cindy Wan for her thorough research and insight into a surprisingly complicated corporate structure.
Win-win Strategy— The Story of Miao, Feng-Chiang’s Strategic Alliances (雙贏策略—苗豐強策略聯盟的故事), by Matthew Miao, published by Commonwealth Publishing Co. Ltd in 1997
- Chess Game Win-Win— Miao, Feng-Chiang’s Global Strategy (棋局雙贏—苗豐強的全球化策略), by Matthew Miao, published by Commonwealth Publishing Co. Ltd in 2002.
- MiTAC Inc--The Story of a Pioneer in Taiwan's Computer Industry (大顯神通—台灣電腦業開路先鋒的故事), Tan Zhong-Min (譚仲民), published by Business Weekly in 1995.
TSMC is short for Taiwan Semiconductor Manufacturing Company. Listed in Taiwan with ADRs traded in the United States, it is one of the largest companies in Taiwan and one of the world’s largest manufacturers of integrated circuits and semiconductors. It was founded in 1987 by another technology pioneer, Morris Chang Chung Mou (張忠謀). Its importance and size is underscored by its almost 24% weighting in the largest Taiwan ETF (EWT, iShares MSCI Taiwan Index). This is more than four times larger than its next largest constituent (Hon Hai Precision Industry, 5.2%).
An interesting side note in early Taiwan business circles, is the ‘Shandong Gang’. The gang bundles together several leading Shandong-born businessmen. In addition to Miao Yu-Siou, other people commonly grouped in this ‘gang’ include the chairman of Ruentex Group, Yen Liang-Yin (尹衍樑)’s father, Yi Shu-Tian(尹書田), the founder of Liu Huo (六和) textile group, Zong Ren-Qing (宗仁卿), the founder of DaChan (大成) group, Han Hao-Ran (韓浩然) and the founder of Baolong (寶隆) International Corp, Zhao Chang-Shu (趙常恕).
Taiwan’s 38 years under martial law was one of the longest in modern history. According to a Wikipedia entry only Syria’s was longer at 44 years (1967-2011). (see here)
 Market capitalization values a company based on the current price of its stock. It is a company’s total number of outstanding shares multiplied by the current share price. It’s usually what comprises the biggest component of rich individuals’ net worth.