Asustek Eyes Auto-Electronics Business

Asustek Computer Inc., Taiwan's biggest maker of motherboards, recently announced plans to set up a new business unit charged with developing the auto-electronics business. The unit's team will be headed by Lin Shao-chang, the company's chief technology officer, and will cooperate with local and foreign automakers in developing auto-use integrated circuit (IC) chips and related system design.

Industry sources note that auto electronics is a rapidly developing sector that offers tremendous business opportunity for information technology (IT) companies, which now confront the problem of slow growth in the global PC market. Most of the world's leading automakers are developing this new business by allying with IT manufacturers, the sources say.



Other leading Taiwanese IT firms are also planning to tap this new market, including Hon Hai Precision Ind. Co., the world's top maker of barebone PCs, connectors, and game consoles, and MiTAC International Corp., a leading IT hardware maker.

A senior Asustek official says that his company has mapped out a plan for systematic diversification into new fields, including cellphones, mini barebone-PC systems, liquid crystal display (LCD) TVs, and printers, while holding to its current businesses such as motherboards, notebook PCs, graphic cards, and optical disk drives.

The proposed auto-electronics team will strive to integrate the company's existing resources in the fields of IT, communications, consumer electronics, and IC design, and develop new products as rapidly as possible. Negotiations with leading global automakers will help pinpoint the best operating mode for this new business.

An increasing amount of sophisticated electronic technology is being incorporated into modern automobiles, including engine-management systems (EMS), vehicle-body controls, and intelligent-transportation systems (ITS), among others. All of these technologies require IC design and system-integration capabilities.

Safety From Technology

Rapid advances in the auto-electronics technology has greatly enhanced the safety and performance of automobiles, and some industry experts predict that electronic devices will come to account for more than 25% of the average car's total cost within the next five years. Obviously, significant opportunities for IT and electronic manufacturers await.

Austek chalked up revenues of about NT$250 billion (US$7.76 billion at NT$32.2:US$1) in 2004, and expects profits for the year to reach around NT$16 billion (US$497 million). This makes Asustek the second most profitable electronic manufacturer in Taiwan, after Hon Hai.

In 2005, Asustek expects revenues to soar to NT$400 billion (US$12.4 billion) and profits to NT$20 billion (US$621.12 million), with most growth coming from barebone systems, motherboards, and notebook PCs.

The slowdown in global PC sales has forced many high-tech manufacturers to shift their target market from the office to the living room (with the development of digital-home products), as well as to automobiles.

Mao Chi-kuo, former chairman of Chunghwa Telecom Co., once noted in a work of analysis that once the two focal points of human life (the home and the office) become digitized, the key link between the two—the transportation vehicle—will have to go digital as well.

The total value of the global auto electronics market was about US$15 billion in 2004, and the figure is expected to rise to US$20 billion this year. The speed of growth is expected to be further accelerated over the next five years because of the increasing popularity of global positioning system (GPS), third-generation (3G) telecoms, and intelligent-vehicle technology.

Asustek chairman Jonney Shih once stressed that in its development, his company would focus on the digital office and digital home markets, with the digital auto market serving as another major field of expansion.

Easy Entry

Entry into the auto-electronics business is relatively easy for IT makers, industry sources explain, because there are many overlapping technologies and even sales channels with the makers' current business. This means that they will not have to spend too much on R&D and other types of investment. All they will have to do is add a fourth "C" to their existing 3C (computers, communications, and consumer electronics) businesses—the new "C," of course, signifying "car."

Some of Taiwan's smaller IT companies, in fact, have been developing the auto-electronics business for several years and have made some initial gains in this new field. For example, Universal Scientific Industrial Co., a leading maker of motherboards, notebook and desktop PCs, and parts, has developed a series of tire-pressure monitoring modules and systems. Orders for these products have come in from leading auto brands in the United States and Europe.

Another example is provided by Power Digital Communications Co., which develops and manufacturers in-car computers. The company recently won an order from Germany's Volkswagen for equipment for its 2007 models.

Industry insiders note that the top priority for big international automakers is product safety and quality stability, and that they often hold a conservative attitude toward new parts suppliers. Frequently, new suppliers have to undergo a two-year process of certification before they can hope to get firm orders. Once established, though, the resulting ties can last for a very long time.

This is another reason for big IT makers to move into auto electronics: in their traditional PC business, product life cycles are short and buyers can easily jump to lower-cost suppliers. This kind of situation is not so pervasive in the auto-electronics business.