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The XPC factor: An interview with Ken Huang, the man behind the Shuttle XPC
Michael McManus, DigiTimes.com, Taipei [Tuesday 1 February 2005]

Although the PC industry has always seen variations of small-form-factor (SFF) PCs, it was only when Shuttle Computer introduced its first XPC about four years ago that the segment really took on a life of its own. Shuttle is now widely recognized as the pioneer of the SFF movement, and Ken Huang, Shuttle vice president of systems development, is considered the chief architect of the SFF concept at Shuttle. DigiTimes recently met with Mr. Huang to talk about the history of the XPC and how the product changed the company, as well as the challenges Shuttle now faces in the SFF market.

Q: Shuttle is considered the industry pioneer of small-form-factor PCs. Could you briefly review the circumstances that led you to develop this market?

A: Shuttle has been in the motherboard industry since 1983. However, as PC growth began slowing several years ago, the industry began falling into decline. With standards set by Intel, IBM or even Microsoft, motherboards had become a commodity product, which left little room for motherboard companies to earn a profit.

At Shuttle though, we noticed that IC design was progressing at a fast pace, and this development opened up new opportunities in motherboard design. So, we decided to design a motherboard that was much more compact than the industry standard, which was ATX at the time. You see, ATX boards are quite large and support a number of expansion slots, but IC design had improved to the point where more and more functions were being integrated onto the chips. This meant that more features could be incorporated within a smaller motherboard footprint, and less expansion slots were needed.

Our partner on our first project was VIA, and we designed a 17×17cm board for them. What is now the Mini ITX platform is actually based on that original 17×17cm board design.

When we first started selling this motherboard, our sales were not that strong. An interesting reaction to our design was that customers took a look at the much smaller motherboard and immediately assumed that it was less powerful and had fewer features than a standard motherboard. Another problem we faced at the outset was that we were still using an ATX chassis with the motherboards, which left a lot of empty space inside the chassis. This also led customers to believe that the design was lacking features.

So, we realized that we had to develop our own chassis for the motherboard, and we developed the cube-type chassis, and the product became the XPC. The first XPC we sold was the SV24, and we targeted the Japan market. Customers loved this product, and our sales did very well.

Q: Aside from size, what were some of the key differences between your XPC small-form-factor computers and more traditional computers?

A: The thing about our new form factor was that it created a truly “desktop” PC, and moving a desktop PC to the tabletop was actually a revolutionary process. It introduced a number of challenges that PC vendors had not really dealt with before.

Traditionally, a desktop PC sits under the table, far away from the user and out of the field of vision. However, with the XPC, users were only about 50cm away from the product and always within line of sight, making acoustics, aesthetic design, and accessibility much more important.

The first version of our XPC did not take this close working relationship into account and produced a noise level similar to standard PCs – about 50dB – and this was unacceptable to our customers. Since then, we have made noise reduction a central issue in our XPC product development, and our current XPCs produce 30-40dB on average, which is very similar to the background noise level of an average living room.

Also, when the PC was sitting under the desk, users did not worry about the appearance, the external design, of the product, but once we moved the PC to the “desktop,” users became much more aware of the style and look of the product, and in turn much more demanding. Shuttle was a leader in bringing style to the PC, and our XPCs were some of the first products to introduce an aluminum chassis and stylish bezels.

In addition, moving the PC to the desktop made it much more accessible, so users wanted a much more user-friendly device. We were one of the first companies to include a front-panel interface in our computer designs. We included USB, earphones and firewire connectors on the front panel of our early products, and we have continued in that vein, providing even more multimedia connectivity on the front of our XPCs, including S/PDIF and 5.1 audio. We also pay special attention when planning the layout, so for example our card reader is placed near the top of the computer, where it is much more accessible.

Q: How did the XPC change Shuttle?

A: Shuttle was in the motherboard business for 20 years, but this could never be a successful business for us as it is based on price and volume, and less on know-how. So we exited the motherboard business completely, and we now focus on our XPC business.

However, although XPCs are the focus of our business, we also sell the components that help complete the total XPC experience. For example, most of our systems are sold as barebones units, so we also offer our customers products such as keyboards, mice and DVD burners that match the style and craft of the XPC.

In addition, since our product is a portable solution, we found that we had to design our own LCD monitors. Portable monitors need to be rugged, and although it is easy to purchase rugged monitors on the market, it is very difficult to find high-performance rugged monitors, especially ones that are portable and stylish.

We are also looking to expand our business by doing special chassis designs for companies that want total-immersion branding. We are way out in front of this trend, and to tell you the truth, we are waiting for the market to catch up with us – and it will. Look around and you will see product placement everywhere; there is even a Hello Kitty computer. Last year, we did a special project as part of our sponsorship of the World Cyber Games (WCG) 2004 Grand Final held in San Francisco. Every competition and administration machine was an XPC with full WCG branding for the event. During and after the show we sold all of the 1,000 or so units we built for the event. It was very gratifying.

Q: So how successful has the company been? After all, although it is possible to make PCs smaller and with a nicer appearance, this does add to the cost of the product. Do people really want this type of product – meaning, are people willing to pay more for a small-form-factor PC?

A: Speaking strictly in revenue terms, our sales were flat in 2004, but you also have to realize that we were phasing out our motherboard business last year.

In terms of the XPC business, though, in the past most of our sales have targeted the DIY market, which means professional users. In this segment, we have been able to develop a strong following, especially among what we call the buzzmakers, people who spread the word to their friends, families and colleagues, letting them know how great the product is. However, no matter how much the buzzmakers talk up the product, they can’t go around building systems for everyone, so the DIY market is limited to more professional users. That’s why, in order for us to be more successful in the long term, we have started to provide complete systems to develop our business in the consumer segment.

Selling complete systems in the consumer segment is new for us, though, and since our product is so special, it requires us to devote a lot of resources to educating the market. In addition, we are spreading the awareness on our own, as few companies offer a solution like ours.

However, the market is interested in products like this, and we are confident in the direction our company has taken. Look at Apple. They have just come out with the Mac mini. Why? Because that is the future of the PC, combining stylish design with a small form factor. Shuttle is already there.

Compare the PC market to any other market. Think of cars; most people would find it strange if over the past 20 years, every car on the market looked the same, with vendors only upgrading the engines. But this is actually the case in the PC industry. “PC” stands for personal computer, and we have set about making it a more personal product, adding an aluminum casing and a more stylish design, instead of offering beige boxes like every other vendor.

Most PC companies are unimaginative, and their actions demonstrate how they believe that PC stands for “price equals cost.” At Shuttle, on the other hand, we believe that hi-tech can have style, and that is what people want.

Q: So Shuttle is evolving from a motherboard and barebones PC vendor to a provider of complete solutions. What are some of the challenges you face in this transition and what percentage of your shipments will be complete systems this year?

A: In transitioning to a complete systems provider, we have had to further develop our logistics network, as finished products require more consideration for customs, taxes and local after-sales support. In addition, we have had to increase our ability to secure financing and more reliably forecast our sales, since as a system provider we need to outlay more money for CPUs, memory, and other components, whose volatile pricing requires good inventory control.

We estimate that about 10% of our sales this year will be complete systems, but we are taking it slow. In North America, we sell direct, through e-commerce sites, but we also sell systems through the retail channel at CompUSA and BestBuy. The Europe market is being developed through our office in Germany, which acts as a clearinghouse for the rest of Europe.

Q: Do you see recent developments with Apple’s Mac mini and Intel’s pico-BTX solution as a threat to your business or as a positive development?

A: We think the Mac mini is very positive for Shuttle. Apple is a major IT company, so people will look at what they are doing and start paying more attention to the small-form-factor market, which will help it expand. For Apple, though, its growth will be limited by the fact that the Mac operating system is not really expected to win over more than 5% of the market. At any rate, Shuttle is the leader in the small-form-factor segment for style, performance and quality, so we are the ones who will benefit as the market expands. At Shuttle, we like it when our competitors advertise, because they draw more attention to the small-form-factor segment, even though they lack the quality, style and depth of product that Shuttle provides.

Q: . . . and pico-BTX?

A: Shuttle does not see pico-BTX as being a threat. In fact, we are the only company to have a pico-BTX solution already selling in the channel. However, at Shuttle, we consider our self-developed Integrated Cooling Engine (ICE) heatpipe technology a more advanced thermal solution. Our ICE technology has a thermal efficiency of 0.16 but the thermal efficiency of pico-BTX is 0.33.

However, we also believe that companies will have difficulty figuring out the thermals for pico-BTX, especially for graphics cards. The pico-BTX standard calls for an even airflow over the motherboard, but some of the more powerful fans used on high-end graphics cards will disrupt this airflow. This is mostly due to the BTX-designed placement of the graphics card in the chassis, which makes the thermals difficult to control. Even our current solution, the XPC SB86i, is meant to be used as an integrated graphics solution.

However, in the long term we think BTX will help our competitors more than us. They are not as devoted to the details of their products as we are, so they will be very willing to just follow an industry standard set by someone else. At Shuttle, we will have a full lineup, featuring our own designs, as well as pico-BTX solutions.

Q: What is the future of your mini-PCs, and would you consider offering cost-down solutions to expand the market?

A: Consumer products are one of the future products, and we are looking to target the general market with our complete systems. At the same time, however, we will continue to target power users.

Shuttle is the market leader in terms of thermal design, and our biggest advantage is in the performance market. Even though we are seeing chip designers aiming for a plateau in the energy consumption of their products, you have to consider that their designs are coming in ever-smaller packages, which makes it more difficult to control the thermals. Nevertheless, Shuttle now advertises thermal support for 3.8GHz and beyond, and our P-chassis features a 350-watt power supply.

In terms of cost-down. Shuttle focuses on solutions, not costs. So, the reason Shuttle products may be more expensive than the competition is because we offer more features. Of course, we are concerned about reducing our costs, but not at the expense of quality. For the SFF market to grow, it will not take lower costs but a more educated market. If you look at other products on the market, people are willing to pay more for products they like. The problem facing our market is that most people are not even aware that these products are available.

Ken Huang, Shuttle vice president of systems development
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