Abstract

BTX Impacts Mini-Barebone Sales

Although Intel started to develop BTX (Balanced Technology Extended) motherboards two years ago, the desktop PC industry did not see high-profile adoption until now. Dell and HP are also expected to launch BTX motherboards in the second half of 2004 and in the first quarter of 2005 respectively. Such rollouts are likely to have different levels of impact on mini-barebone growth.

The impact on Dell's mini-barebone sales is expected to be limited due to the vendor's focus on corporate models, from which systems built on BTX motherboards are quite different.

HP has been a dominant player in the consumer market, especially in Western Europe. In the second half of 2003, HP planned to role out its own mini-barebone and outsource the production. The plan was later aborted due to the lack of consensus over outsourcing costs and production scale. Instead, BTX motherboards present an opportunity for HP to develop diversified motherboards and to offer a variety of choices in the Western European market. As a result, Taiwanese mini-barebone makers are expected to face stiff competition from HP, which targets the same market with similar models.   

Contracts Hard to Come by

Gateway previously outsourced to Foxconn and Wistron, while eMachines outsourced to FIC, Trigem and Tatung. In the first quarter of 2004, the Gateway-eMachines merger already started restructuring, to be followed by integration of product lines. As a result, outsourcing arrangements are anticipated to see changes.

Weak vertical integration of components tips Korean maker Trigem in an unfavorable position of capturing orders. Taiwanese maker FIC looks to secure contracts, based on its long-running partnership with eMachines and ability to launch low-price offerings. However, FIC still faces competition from other makers with low-cost advantages and high vertical integration.

Intensifying competition in the PC market havs given rise to a succession of mergers, such as the one between HP and Compaq, and the one between Gateway and eMachines. As mergers often equate to fewer customers for contract makers, to secure contracts becomes increasingly difficult. Therefore, contract makers are expected to find it increasingly important to maintain healthy relationship with existing customers.

Due to the fall in the number of customerrs, motherboard makers have fewer opportunities to explore and further develop system business. The threshold to transform into system makers is thus increasingly high. Additionally, as mergers or acquisitions generate an increased volume of orders for those makers that can win over members of a shrinking potential client base, a balance of power is taking shape between OEM suppliers and branded manufacturers.

Chinese Makers Face Other Contenders

In 2003, Chinese makers shipped approximately 11.7 million units, registering 18.2% growth compared with 2002, higher than the 5.9% rise in the global shipment. Chinese makers' shipment volume is expected to maintain double-digit growth to stand at 18.3% in 2004, also higher than the 9.3% anticipated for global shipments. The market development in the last two years demonstrates that China has shaken off the economic gloom of 2002, and is now moving on a high-growth track. This momentum is expected to reverberate into 2005.

However, international vendors such Dell and HP are aggressively entering China to further explore the massive market. Coupled with a swarm of Chinese makers seeking better market presence, the desktop PC segment has become a fiercely contested arena.

This white-hot competition is most illustrated in the change in shipment share of top ten Chinese makers. Their share dropped to 58.4% in 2003 from 60.2% in 2002, and is expected to slide 2.6 percentage points to reach 55.8% in 2004, illustrating a growing trend of waning industry concentration.

Appendix

Research Scope

The data and analysis contained within this report covers Taiwanese and Chinese desktop PC makers that assemble full systems anywhere in 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