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 Photo: company Shuttle SB77G5 XPC Photo: company Shuttle XP17 LCD monitor with XPC Photo: company Total immersion marketing Photo: company

Taiwan-based vendors of small-form-factor (SFF) PCs are optimistic about the influence that Apple’s new Mac mini will have on the PC market, since it should draw more mainstream attention to the SFF PC segment, according to sources at the vendors. The recently introduced Mac mini is only two inches tall and 6.5 inches square, with retail prices starting at US$499. Apple is positioning the Mac mini as an affordable alternative to Windows-based PCs, and the company hopes that it will help win over more customers to the Mac operating system. However, Taiwan SFF vendors point out that Apple has only about a 2% share of the overall PC market, and interoperability issues will prevent many users from switching operating systems. So Apple’s market share cannot be expected to increase that much, the vendors explained. However, the SFF vendors do think that the Mac mini will have an influence on the PC market, as Apple will grab a fair portion of mind-share among mainstream users. Users will be attracted by the idea of an affordable PC that is small and stylish, and this in turn will make more mainstream users consider purchasing SFF PCs, the vendors argued. Although not as compact as the Mac mini, when compared to traditional PCs, SFF PCs are still smaller, relatively more stylish and run more quietly. Over the past few years, most SFF vendors anticipated that demand for their products would grow steadily, but although there has been good uptake among gamers and enthusiasts, SFF PCs have yet to make a dent in the mainstream market. In 2004, SFF PCs accounted for about only 1% of the total computer market, stated a source at one of the vendors. One obstacle SFF PC vendors face is that their products are generally more expensive than low-cost, traditional tower PCs offered by large brands, such as Hewlett-Packard (HP) and Dell. However, with Apple now entering the mainstream PC market, SFF vendors expect buyers to begin comparing affordable Windows-based systems, with similar products from Apple. One of the vendors noted how the success of the iPod has boosted sales for MP3 players used with Windows-based machines. If the Mac mini sells well, and Apple grabs more market share, it will drum up more demand for similar types of Window-based machines, the vendor stated. If the Mac mini sells extremely well, the vendor added, then things would get very interesting, as it would make Microsoft sit up and take more notice of the SFF segment.

Small-form-factor (SFF) desktop PCs are still a relatively new concept in the PC market. It was less than four years ago that Shuttle introduced its first SFF PC model, the PC-SV24. The company is now widely recognized as the pioneer of the SFF movement and the originator of the SFF concept. Last year, Shuttle reported that it had shipped its millionth unit from its XPC family of SFF PCs. Currently the company has a comprehensive SFF PC product lineup, consisting of models for both the Intel and the AMD CPU platforms, based on chipsets from five vendors (Intel, VIA Technologies, SiS, ATI, Nvidia) and targeting various market segments from value systems to solutions for enthusiasts and “overclockers.” Strictly speaking, there is no “classical” definition of an SFF PC. If the definition is a PC that is smaller than a regular desktop PC housed in a tower case, products that follow those criteria were available before the Shuttle PC-SV24. However, Shuttle was definitely the first company to come to market with a complete concept of a compact desktop PC and its own vision of the future of the product. The Shuttle PC-SV24 featured the VIA Apollo Pro 133A chipset with integrated graphics and supported Socket 370 CPUs, though the system came with only one PCI expansion slot on the motherboard. The company had chosen its own proprietary form factor for the product, instead of an open standard. This began a trend towards non-standard form factors, with offerings from other vendors in addition to Shuttle. These rival motherboard vendors had recognized the benefits and potential of SFF PCs, and they entered the market with their own solutions based on their own proprietary form factors. Currently, there are still a wide variety of form factors in the SFF PC market, from tiny boxes with a processor embedded on the motherboard to the larger-sized cases that offer more upgrade options. However, when the industry talks about SFF systems, the reference is normally to the more-or-less cubic designs, similar to the first model introduced by Shuttle in 2001. These products are still mostly sold as barebone systems, comprising case, power supply, motherboard (typically with integrated video, audio and LAN support), mouse and keyboard. Some vendors may also bundle their products with monitors, optical drives, or other components, though key components such as CPUs, DRAM memory modules and HDDs are usually sold separately. Since Intel introduced its BTX (Balanced Technology Extended) specification at IDF Fall 2003, many vendors have also focused their efforts on bringing this form factor to the SFF PC segment. Until now, however, these developments have not actually resulted in many new products. It is interesting to note, though, how these efforts have also given new life to attempts to use other standard form factors to design SFF PCs, such as Micro ATX or Flex ATX. The SFF market was also one of the first PC segments to understand that PCs are now morphing into consumer-electronics products, as the vendors offered customers more stylish designs and more accessible products. This general trend to the convergence of IT and consumer electronics is ongoing, and makers now devote as many resources to designing the outside of their products as they do the inside. Over the next several months, DigiTimes.com will take a closer look at the products and vendors in the SFF segment, as well as the market in general, with the intention of providing a better picture of where the market stands and where it is heading.

Shuttle Computer shipped 638,000 small-form-factor (SFF) computers in 2004, up 16% from the 550,000 XPCs it shipped in 2003, according to company sources. The designer and manufacturer of small-form-factor (SFF) computers and accessories also continued to increase its focus on its XPC line in 2004, as it phased out its motherboard business of 20 years and formally announced a program to offer complete XPC systems worldwide. A December 2004 report had Shuttle estimating that 20% of its XPC shipments last year were for PCI Express (PCIe) systems, while 80% were AGP-based. The company also expects to increase its ratio of PCIe systems to 50% in 2005. Although Intel-based systems accounted for about 65% of the company's XPC shipments last year, and Shuttle’s AMD-based XPC shipments should soon receive a boost as the company is preparing to ship its SN25P XPC, which will be the first nForce4-based small-form-factor solution on the market. The SN25P is expected to begin shipping in volume in mid-February, with the official launch date set for February 22. Europe and the US will account for 70% of the first shipments. The SN25P will be the first small-form-factor PC to feature Hypertransport and PCIe. The AMD Socket-939 CPU-based solution will be housed in Shuttle’s P-chassis, which features a 350-watt power supply, the sources added.

AOpen took the top spot in Japan’s barebones-PC market in 2004, taking a 37% market share, according to statistics compiled by Japan's Business Computer News (BCN). BCN’s data had Shuttle ranked second with a 21% share, and Asustek rounding out the top three with 15% of the market. According to market sources, the barebones shipment figures are key indicators for tracking shipments of mini PCs in the Japan market, and AOpen confirmed that a large portion of its barebone shipments were for its XCcube line of mini PCs. AOpen’s top-selling barebones PC in Japan last year was its XCcube EZ65, which targets the consumer market, and the product continues to sell well in 2005, with BCN ranking it the top-selling barebones PC in Japan for the first week of 2005, accounting for 11% of the market. Although Japan’s mini-PC market is small, with a total sales volume of about 10,000 units per month, industry sources say it is a key market for mini-PC vendors as margins are higher and customers are more willing to adopt the most recent, more consumer-oriented designs. AOpen only began selling mini PCs in Japan in the fourth quarter of 2003 but was able to quickly grow its market since it had strong brand recognition in Japan, where it once ranked as the number-one motherboard vendor, stated Tony Yang, marketing director at AOpen. By the end of 2004, AOpen was shipping about 10,000 mini PCs worldwide per month, and the company aims to triple its shipment this year. In addition to barebones PCs, AOpen manufactures motherboards, optical disc drives, and other PC components, and ships 10,000-15,000 notebook PCs per month. Last year, its barebones-PC business was its most profitable business.

To promote the first production run of its PCIe-enabled pico-BTX XPC model SB86i, Shuttle Computer will bundle a free BTX CPU cooler with each barebones system, according to sources. Although the sources claimed the 5000 units will begin shipping next week, the company refuted the claim and stated that the systems will not begin shipping until mid-December, although they will be available in retail outlets before Christmas. The first shipments will mostly be to the US and European markets, the company added. According to a Shuttle press release, the SB86i XPC will be the first commercial application of the pico-BTX design specification. The barebones system is built around the Intel 915G chipset, which integrates Intel’s Graphics Media Accelerator 900 and features Microsoft DirectX9 support. The SB86i XPC will also support 16x PCIe graphics cards. Intel launched channel sales of its BTX products on November 15. Before then, BTX based PCs had been only available through OEMs. Intel claims it introduced the BTX form factor to meet the growing need for smaller, sleeker and cooler PCs. Compared to ATX motherboards, BTX boards will run cooler and quieter since the improved motherboard layout and chassis design deliver an increased airflow to high-power components and require fewer fans and lower fan speeds, an Intel press release stated. Shuttle estimates that 20% of its XPC shipments this year will be PCIe systems, while 80% will be AGP-based. The company expects to increase its ratio of PCIe systems to 50% next year. Intel-based systems will account for 65% of the company’s XPC shipments this year, the company added. In related news, Shuttle confirmed that it will debut its 16x DVD Dual DL burners next week. The burner will be available in assorted colors, including white, silver and black and will be sold separately, as opposed to bundled with the company’s XPC barebones systems. Shuttle XPC-SB86i Photo: Shuttle Taiwan. Shuttle 16x DVD Dual DL burner-CD40 Photo: Shuttle Taiwan.

Intel yesterday introduced a series of BTX (Balanced Technology Extended)-compatible products, including boxed processors, thermal modules, motherboards, chassis and power supplies in Taipei. The products will be sold worldwide through channel distribution. Previously, BTX-based PCs had only been available from OEMs, but with the release of these boxed BTX-compatible products, worldwide channel customers can now provide BTX systems as well, according to an Intel press release. With support from a number of leading vendors and OEM makers, Intel expects the BTX form factor to become the mainstream for the PC industry by 2006, said Stanley Huang, Intel’s director of marketing and business management for the Asia Pacific region. Some sources at Taiwan makers of small-form-factor (SFF) systems said that the introduction of the BTX form factor systems may negatively affect the future development of SFF systems. However, sources at Shuttle Computer, the leading designer and manufacturer of small-form-factor (SFF) computers, said that the impact of BTX form factor system on sales of its SFF PCs, the XPC line, will be limited. The sources said that Shuttle will also cooperate with Intel to develop and market BTX-compatible systems.

Taiwan-based Shuttle Computer, a designer and manufacturer of small-form-factor (SFF) computers and accessories, announced yesterday that it will begin marketing complete systems from its XPC line of small-form-factor (SFF) computers worldwide. The company already markets complete XPC systems in the US and some European countries. Shuttle aims to ship about 10,000 complete XPC systems a month in the fourth quarter of this year, including 5,000 units for international markets and 5,000 units for the domestic market, according to company chairman David Yu. Yu said that Shuttle began shipping complete XPC-branded PCs in the US market in May and to Europe in September. The company’s total SFF PC shipments, including barebones units, are expected to increase 20% this year from 650,000 units in 2003. The company also plans to ship 800,000 units in 2005, Yu asserted. Yu expects shipments of complete XPC systems to account for 15-20% of Shuttle’s total shipments next year. Yu also said that Shuttle’s gross margins will improve substantially in 2005 since its complete systems will carry price tags ranging from US$700 to US$1,000, compared to an average of US$200 for its barebone SFF PCs. Shuttle displays its small-form-factor products Photo: Allen Lin, DigiTimes

AOpen, a manufacturer of optical disc drives (ODDs), motherboards and barebone PCs, has decided to overhaul its strategy and will focus on barebone systems, according to company sources. Currently, ODDs and motherboards account for 50% of AOpen’s total revenues, while small form factor (SFF) PCs and system solutions form the remaining 50%. The proportion of SFF PCs and system solutions should increase substantially by year-end, the sources stated. The company posted a record loss of NT$660 million in the first half of this year, with the losses stemming mainly from the decreased value of its ODD inventory as well as royalties paid for patented ODD technology. With its production concentrating more on system solutions, which normally carry higher gross margins, the company hopes that its operations will be back on track starting in the fourth quarter or early next year.