Several Challenges for Joint Venture
The new company's business model is somewhat similar to other companies in the industry. For example, ASRock, Asus' affiliate brand, possesses its own R&D, marketing, and sales teams, while leveraging Asus' advantages in production and procurement for lowering costs. Moreover, several second-tier motherboard makers have started to focus on R&D, marketing, channel management, and after-sale services, while outsourcing their production to first-tier motherboard makers.
Although these companies seem to have similar business models, the goal for the establishment of ASRock was initially aimed at higher shipment volume in value-line markets, while Asus targets other market segments. The cooperation between first- and second-tier vendors only focuses on interactions in production and there is not a lot of brand conflict between them.
However, as Gigabyte and Asus have a similar product positioning and client base, and cover similar market segments, it remains to be seen what kind of advantages can be generated by the two companies' alliance. Moreover, as many plans and strategies of the new company were not immediately released after the announcement of the alliance, the new workforce may experience uncertainty about the direction of this new entity. Failing to ease their fears will give opponents chances to take advantage.
This alliance might also create doubts for channel players. For example, they might question whether Gigabyte will quit its own-brand operations and whether Asus will merge with Gigabyte and generate issues regarding brand-name management. Therefore, if other competitors try to take over Gigabyte's existing channel players, Gigabyte's market share might be affected by opponents with similar market positioning.
State of the Overall Industry to Affect Joint Venture
Performance Enhanced When Industry is Booming
As new CPUs and chipsets are about to debut in the second half of 2006, and as the Windows Vista Home Edition will hit the market in 2007, the Taiwanese motherboard industry's shipment performance is expected to improve. Consequently, the major motherboard makers will not need to engage in price competition in the second half of the year. As the outlook for the motherboard industry looks promising in 2006 and 2007, the joint venture between Asus and Gigabyte alliance is expected to cease the price competition among makers.
Performance Affected When Industry is Not Experiencing Strong Growth
If the overall industry is not experiencing strong growth, inventory and capital problems emerge, causing makers to engage in price competition to earn market share.
Other vendors such as ECS and MSI might still initiate price competition, despite the fact that their profit margins will be reduced. This move will help them pick up market share, and relieve their inventory and capital pressure. As a result, even though profit margins will be reduced, they will still lower motherboard prices for their own sake.
Even if makers, who initiate a price war, only account for one third of the overall market, the joint venture between Gigabyte and Asus might still face pressures and might eventually lower prices.
In conclusion, when the industry is booming, the Asus-Gigabyte joint venture will have a positive effect on the overall motherboard industry. However, when the industry is not growing strongly, the joint venture's efforts to cease price competition will be limited, and price competition will remain one of the main strategies in the Taiwanese motherboard industry as a means to expand market share.