Taiwanese Motherboard Suppliers Look to the EMS Market for Growth
Jun 24, 2003 Ι Industry In-Focus
Ι Electronics and Computers Ι By Ken, CENS
This year, many Taiwanese computer-motherboard manufacturers will begin to see a payoff from their efforts to transform into electronics-manufacturing service (EMS) providers, marking a shift upward from their previous status as pure original equipment manufacturing (OEM) suppliers.
Asustek Computer estimates it will double shipments of its notebook computers to two million by year-end on a year-to-year basis, while Universal Scientific Industrial Co. says it will become profitable this year after expanding into the production of original design manufacturing (ODM) notebook computers, liquid crystal displays (LCDs) and wireless network cards two years ago.
Many electronics manufacturers in Taiwan, including Hon Hai Precision Industrial Co., and Wistron Corp., moved into the EMS market several years ago when the personal-computer market began to slow down.
Unlike these earlier entrants into the EMS market, which have opened factories around the world, most motherboard makers continue to focus their overseas production in mainland China.
Catching Up With the Early Birds
One of the biggest challenges facing motherboard makers as they enter the EMS market is how to bring their costs into line with more established competitors.
Asustek and Micro-Star International Co., spent 7.18% and 7.84% of revenue, respectively, on operating expenses in the first three quarters last year. Hon Hai, by comparison, spent only 3.84% of its revenues on operating costs.
R&D expenditure took up 2.08% of Universal Scientific's revenue last quarter, increasing from 1.77% throughout last year, 1.41% in 2001 and 1.04% in 2000. Due to rising R&D costs, the company posted successive losses until the first quarter this year, when it posted earnings of NT$0.33 per share.
To trim costs, the company does most of its production in mainland China rather than in Taiwan, where it is headquartered. It has cut most staff at its factories in Scotland and California, rejecting the idea that EMS providers need to have a strong manufacturing presence globally. "Costs on overseas shipments from the mainland are not necessarily higher than building manufacturing facilities overseas because the Internet is reducing the need for overseas business trips and bringing down shipment costs for IT products made worldwide," says Universal Scientific chief financial officer D.H. Su.
Asustek executives point out that Su's analysis is backed up by the fact that an increasing number of world-leading EMS providers have moved production to the mainland after shuttering factories elsewhere in the world.
Another difference between motherboard-focused EMS providers and established providers is that the former have expanded product lines based on their associated core components while early entrants have tended to branch out into other segments. Asustek, for example, has expanded into handsets and notebook computers, segments in which it can draw on its strengths in making motherboards, printed circuit boards, cases and connectors.
Universal Scientific has expanded from its OEM business with International Business Machines (IBM) and Agere Systems into notebook computers, LCD panels and wireless networking cards.
Asustek and Universal Scientific expect to generate half of their revenue this year from their EMS business.
While motherboard makers do not match Hon Hai, Acer and other EMS suppliers in terms of product selection or financial strength, they still have many advantages, such as established marketing channels and service networks, as well as flexible production modes.
Early this year, LG Group of South Korea and Micro-Star International of the U.S. co-established a notebook-computer venture in Kunshan, near Shanghai, and Samsung Electronics has contracted Asustek to build notebook computers. These cases suggest that the two South Korean companies prefer to work with less threatening new entrants than with full-fledged competitors that also sell own-brand computers.
Asustek has lured away orders from Hon Hai to supply Dell Computer, Intel, Hewlett-Packard (HP) and Sony.
Just as Hon Hai forced Flextronics Corp., SCI and other leading EMS providers to focus on higher-added-value communication products, motherboard makers are now putting the heat on Hon Hai and other earlier EMS entrants in their respective markets.
Industry watchers in Taiwan predict that the motherboard manufacturers will be able to raise their position in the supply chain and find new avenues for growth.
Asustek Computer estimates it will double shipments of its notebook computers to two million by year-end on a year-to-year basis, while Universal Scientific Industrial Co. says it will become profitable this year after expanding into the production of original design manufacturing (ODM) notebook computers, liquid crystal displays (LCDs) and wireless network cards two years ago.
Many electronics manufacturers in Taiwan, including Hon Hai Precision Industrial Co., and Wistron Corp., moved into the EMS market several years ago when the personal-computer market began to slow down.
Unlike these earlier entrants into the EMS market, which have opened factories around the world, most motherboard makers continue to focus their overseas production in mainland China.
Catching Up With the Early Birds
One of the biggest challenges facing motherboard makers as they enter the EMS market is how to bring their costs into line with more established competitors.
Asustek and Micro-Star International Co., spent 7.18% and 7.84% of revenue, respectively, on operating expenses in the first three quarters last year. Hon Hai, by comparison, spent only 3.84% of its revenues on operating costs.
R&D expenditure took up 2.08% of Universal Scientific's revenue last quarter, increasing from 1.77% throughout last year, 1.41% in 2001 and 1.04% in 2000. Due to rising R&D costs, the company posted successive losses until the first quarter this year, when it posted earnings of NT$0.33 per share.
To trim costs, the company does most of its production in mainland China rather than in Taiwan, where it is headquartered. It has cut most staff at its factories in Scotland and California, rejecting the idea that EMS providers need to have a strong manufacturing presence globally. "Costs on overseas shipments from the mainland are not necessarily higher than building manufacturing facilities overseas because the Internet is reducing the need for overseas business trips and bringing down shipment costs for IT products made worldwide," says Universal Scientific chief financial officer D.H. Su.
Asustek executives point out that Su's analysis is backed up by the fact that an increasing number of world-leading EMS providers have moved production to the mainland after shuttering factories elsewhere in the world.
Another difference between motherboard-focused EMS providers and established providers is that the former have expanded product lines based on their associated core components while early entrants have tended to branch out into other segments. Asustek, for example, has expanded into handsets and notebook computers, segments in which it can draw on its strengths in making motherboards, printed circuit boards, cases and connectors.
Universal Scientific has expanded from its OEM business with International Business Machines (IBM) and Agere Systems into notebook computers, LCD panels and wireless networking cards.
Asustek and Universal Scientific expect to generate half of their revenue this year from their EMS business.
While motherboard makers do not match Hon Hai, Acer and other EMS suppliers in terms of product selection or financial strength, they still have many advantages, such as established marketing channels and service networks, as well as flexible production modes.
Early this year, LG Group of South Korea and Micro-Star International of the U.S. co-established a notebook-computer venture in Kunshan, near Shanghai, and Samsung Electronics has contracted Asustek to build notebook computers. These cases suggest that the two South Korean companies prefer to work with less threatening new entrants than with full-fledged competitors that also sell own-brand computers.
Asustek has lured away orders from Hon Hai to supply Dell Computer, Intel, Hewlett-Packard (HP) and Sony.
Just as Hon Hai forced Flextronics Corp., SCI and other leading EMS providers to focus on higher-added-value communication products, motherboard makers are now putting the heat on Hon Hai and other earlier EMS entrants in their respective markets.
Industry watchers in Taiwan predict that the motherboard manufacturers will be able to raise their position in the supply chain and find new avenues for growth.
| EMS Providers | |||||||||
| Later Taiwanese Entrants | Early Taiwanese Entrants | International Providers | |||||||
| Universal Scientific | First International Computer | ||||||||
| NT$115 billion | NT$31.7 billion | NT$56.6 billion | NT$245 billion | NT$81 billion | NT$39.4 billion | US$13.4 billion | US$8.3 billion | US$12.3 billion | |
| NT$5.02 | NT$0.4 | NT$6.01 | NT$8.17 | NT$2.1 | -NT$1.62 | US$0.31 | -US$1.98 | -US$3.98 | |
| Taiwan, mainland China, Czech, Mexico | Taiwan, mainland China, Mexico | Taiwan, mainland China | Global (70% in mainland China) | Taiwan, mainland China, Mexico, thePhilippines | Global (40% in mainland China) | ||||
| Sources: The companies | |||||||||
- Get to Know Us
- About Us
- Business Partners
- Follow Us on Facebook
- Services & Products
- Customized Sourcing Services
- Trade Magazines / eBooks
- Taiwan Industry Updates
- Global Trade Shows
- Global Pass
- Help
- FAQ
- Contact Us
- Site Map
©1995-2006 Copyright China Economic News Service All Rights Reserved.
