In 2001, the Greater Chinese motherboard industry experienced an unprecedented negative growth rate of 2.6%, while worldwide motherboard shipment volume fell 4.8%. Nevertheless, MIC believes that the dark cloud over the global motherboard industry will be swept away in 2002 and the market will boom once again thereafter. This forecast is based on the steady stream of new products being released to the market that will help stimulate the demand. It is anticipated that beginning from the second half of 2002, the next cycle of PC replacement will kick off, peaking 2003. At the same time, Microsoft new operating system, Windows XP, will gradually capture and increased share of the market, which will compel customers to upgrade their hardware in order to meet the requirements of Windows XP. As a consequence, the motherboard industry in Greater China, which already maintains an 89.6% share of global production, is expected to maintain a steady rate of growth for the foreseeable future.
Despite the overall decline of the motherboard industry in 2001, Greater Chinese motherboard manufacturers did enjoy some success in the clone market. The global clone market grew in 2001 as a result of the downturn in global economy that prompted customers to seek cheaper alternatives to the brand name PCs. However, in 2002, it is unlikely that the clone market will grow as quickly as in 2001, given that key component prices are expected to rise and the high likelihood of global economic recovery. The rising prices of key components are mainly the result of increasing demand for DDR and the expected popularity of Intel Northwood CPU. Consequently, the branded PC market is expected to grow in 2002, which will benefit OEM businesses, and therefore the larger size motherboard manufacturers.
In 2001, first-tier Taiwanese motherboard manufacturers continued to expand operations in China, a trend which will continue for the next several years. Although these new Chinese facilities are the product of Taiwanese players' investments, they operate as independent entities. If the Chinese facility production capacity exceeds the needs of its Taiwanese parent company, it can also serve as an EMS provider for smaller Greater Chinese motherboard makers. With the ramping up of production at these new factories, MIC expects motherboard production volume in China to surpass that of Taiwan in 2002.
Some smaller motherboard makers have chosen to release production to larger manufacturers who have already established production facilities in China. This strategy benefits all parties involved. By increasing production volume, the larger manufacturers can enhance their economies of scale, thereby gaining a further cost advantage. The smaller makers are also able to lower their costs because outsourcing is cheaper than undertaking the production themselves. With a price war brewing in the motherboard industry, MIC foresees many smaller players employing this strategy in order to survive, which will have the effect of increasing the industry production concentration. Meanwhile, some companies, regardless of business scale, have sought to form joint ventures with local Chinese makers in order to lower the entry barriers to the market and reduce their investment risk.
Foxconn appearance on the scene is changing the landscape of the motherboard industry. Foxconn is positioning itself as an EMS provider, offering motherboards at an extremely competitive price, while leveraging its relationship with Intel. In the long run, motherboard production will be dominated by two types of large manufacturers: EMS/OEM makers, such as Foxconn and ECS, who will rely on their incomparable production and cost management capabilities; and own brand makers, such as Asus and Gigabyte, who will rely on their superior design capabilities and brand names in the clone market.