Abstract

Mini-Barebone Development Challenges

Taiwanese motherboard makers have been developing mini-barebones for two to three years and in 2003, a wide range of different models were available. While several makers have developed mini-barebones similar in appearance to Shuttle's XPC, there are also a number of other designs, such as Iwill'sZPC or ASUS's DiGiMatrix. Total shipment volume of mini-barebones in 2003 was around 850,000 to 900,000 units. While Shuttle has been selling its barebones for two to three years already, most of the other makers only began large-volume production in the second half of 2003, therefore mini-barebone products have yet to make a significant contribution to these companies' revenue.

A majority of motherboard makers' customers, including SI (System Integrators), VAR (Value Added Retailers), and ordinary consumers, have gradually become more receptive to diverse industrial designs sand the fact that mini-barebones tend to be 30% to 50% more expensive than traditional motherboards. Nevertheless, although the market is becoming more receptive to mini-barebones, with sales volume gradually rising, there remain various problems to be overcome.

Firstly, although SI and VAR are gradually becoming more receptive to the mini-barebone concept, customers whose main business area is the bid market rather than the retail market will tend to be less enthusiastic. This type of customer wants standardized, low-price products, but if motherboard makers were to start using standardized motherboards in their mini-barebones, this would reduce value added derived from full system design.

Even with those SI and VAR customers who are largely oriented towards the retail market, motherboard makers still have to face competition from the brand-name PC vendors. Mini-barebones are more expensive than traditional PCs and are usually designed to target PC replacement customers. The target market for mini-barebones is thus limited to countries where the PC market is mature, or where income levels are high. However, these markets are precisely those where brand-name vendors are strongest; motherboard makers will therefore find it very difficult to gain market share in these markets.

With a variety of mini-barebone industrial designs, mini-barebones certainly offer more choice in a market where products have been standardized for a long time. With the overall shipment volume remaining low, the growth rate in 2004 is anticipated to be quite high. However, mini-barebones will not make a significant contribution to revenue or to business sustainability until motherboard makers can find the best business model that balances product, price, market, and distribution channels.

System Makers Aggressively Expanding ODM/OEM

In 2003, ODM/OEM production for the top ten brand-name PC vendors accounted for over 80% of the Taiwanese desktop PC industry's total shipment volume; the top ten vendors in turn account for around 50% of all PCs sold worldwide. The relationship between Taiwanese PC manufacturers and top ten vendors is closely knit; however, given the low growth rate in the global desktop PC market, the prospects for further growth in the volume of ODM/OEM contracts awarded by the brand-name PC vendors are limited.

Faced with the difficulty of achieving volume growth in their ODM/OEM business, Taiwanese makers are now trying to expand to customers outside the top ten. Most of the new customers secured in 2003 were Chinese brands; shipments to these customers are anticipated to make a significant contribution to the Taiwanese makers' revenue in 2004.

Besides working to develop new ODM/OEM business opportunities in the China market to reduce dependence on top ten vendors, Taiwanese makers are also targeting the retail market, seeking opportunities to secure contracts from channel players. Taiwanese makers have adopted two main strategies in pursuit of this goal; one is to introduce a wider range of industrial designs, and the other is to supplement OEM with branded manufacturing.

To meet the needs of the home user market, Taiwanese makers are paying particular attention to industrial design, ease of assembly, and the provision of special functions and specifications. The aim is to differentiate their new-generation products from traditional, standardized, tower-type desktop PCs. To overcome distributors' concerns that these new PCs may not be acceptable to consumers, some makers are launching their own brands to get their products onto the market. Once the makers have demonstrated that their PCs will sell, channel players will be more enthusiastic about placing orders for them. Taiwanese makers can then either withdraw from branded manufacturing to focus on ODM/OEM, or emphasize branded manufacturing for some product lines and ODM/OEM for others.

Appendix

Research Scope

The Greater Chinese desktop PC industry includes two main segments. The first segment is the Greater Chinese motherboard industry, which includes Taiwanese, Chinese, and Hong Kong manufacturers producing desktop PC motherboards in Taiwan, China, and Mexico. The second segment is the Taiwanese desktop PC industry, which includes Taiwanese manufacturers producing full system and barebone products in production locations all over the world.

Definitions

Assembly Levels

Business Types

OEM

The OEM (Original Equipment Manufacturing) business model entails carrying out product manufacturing or assembly according to specifications supplied by the customer. The OEM business model emphasizes production efficiency; thus, in order to lower costs, customers outsource manufacturing to OEM providers. This cooperation forms a division of labor among design, manufacturing, and sales.

ODM

The ODM (Original Design Manufacturing) business model entails undertaking product design and manufacturing, but not direct retail sales or brand promotion. ODM providers either collaborate with customers on product specifications or independently design products according to customer specifications; the ODM provider then receives manufacturing orders upon customer approval. The ODM model links the sales capabilities of the ODM customer and the design and manufacturing capabilities of the ODM provider, developing a cooperative division of labor throughout the product's value chain.

 Glossary of Terms