The clone market once provided a great platform for Taiwan’s burgeoning motherboard production and helped the manufacturers to grow significantly over the years. However, now with a penetration rate of over 90% in the sector and competition of low-price brand PCs from international heavyweights, moving into the OEM market has become an alternative and also necessary move for Taiwan’s board makers in seeking further sales growth.
The inevitable trend towards the OEM market
Starting from the clone markets, Taiwan’s top four board makers – Asustek Computer, Gigabyte Technology, Micro-Star International (MSI) and Elitegroup Computer Systems (ECS) – have all begun to gradually shift their focus to the OEM sector. For Asustek, Gigabyte and MSI, OEM orders currently account for only 20-30% of overall revenues, but the ratios represent significant growth from before 1999.
In 2001, board makers’ revenue ratios from the OEM market decreased due to clients being more conservative about placing orders given the unclear business outlook. However, cutting into the OEM sector is an unavoidable trend for manufacturers. In the next two or three years, motherboard companies are expected to gain almost all of their sales growth from OEM products.
However, with the move, motherboard makers will compete not only against each other but also SIs (system integrators) and EMS (electronics manufacturing service) companies that have abundant logistic and production resources worldwide. Given this, first-tier companies such as Asustek, which has established a large-scale production base in China and has more experience with system products, stand a better chance in the new battlefield.
Top four control over the market even more pronounced
In addition to their production scale, first-tier companies also have the operating experience required for the OEM business. Without these capabilities, second-tier manufacturers are almost certainly destined to lose market share to the top-tier companies, even though they may find some niche markets for themselves.
The concentration of business in the four major board makers has reflected the advantages of large-scale operations. According to Taiwan’s Market Intelligence Center (MIC), the local motherboard industry is estimated to have shipped about 80 million boards in 2001, and the top four took up nearly 50 million units, claiming a 61.5% share. The figure represents a year-on-year growth of around 14 percentage points.
The top four companies’ control over the industry can be seen even more significantly in their increasing share of industry revenues. In 2000, they accounted for 63.9% of the industry’s revenues, but the ratio jumped to 72.4% in the first 10 months of 2001. The performance is in sharp contrast to the limited sales growth or even decline of some second-tier companies.
Multiple operations for further growth
Considering that the PC sector is now gradually entering its mature stage, although OEM orders help first-tier companies maintain their revenue growth, they will not be able to continue contributing great revenues to the companies.
Either to seek future growth or simply find an alternative for survival, both first and second-tier companies have all started developing other products.
Among the first-tier companies, Asustek has reported the most significant results with its own-brand notebooks. The company is ranked fifth and tenth, respectively, in Taiwan and China’s own-brand notebook markets. Asustek’s success in notebook production has not only decreased its revenue ratio of motherboards, but also attracted ECS to enter the market. ECS launched its low-price “DeskNote” (formerly named i-Buddie) line in November 2001. With sales picking up, the company generated more revenues from notebooks than from its motherboard products in the first quarter of 2002.
Gigabyte, on the other hand, has moved into the server and barebone system markets and recently seen sales gradually increase.
Despite the opportunities on offer, stiff competition and the possibility of low gross margins still await motherboard makers in these new ventures. Without a complete marketing strategy, abundant resources and a resolution to put up with losses in the preliminary stages, companies might not achieve the success they expect.
Article translated by Christy Lee and edited by Zoran Pavlovski
