Abstract
Although there was some degree of recovery in the global economy, in the second quarter of 2002, demand for desktop PCs continued to decrease. This was due in part to these products having reached such an advanced stage of maturity, as well as the growing popularity of value-line notebook PCs. The combination of a traditionally weak second quarter and the impact of the World Cup football tournament ensured that sales continued to fall. Taiwanese desktop PC shipments in the second quarter of 2002 thus decreased compared to the same period in 2001. However, due to a higher ASP resulting from the release of more expensive desktop PC models, as well as full systems accounting for a greater share of output, production value grew.
In China, increased shipments from Chinese makers resulted from stronger demand in the domestic market. Additionally, promotional activities and the release of new products helped warm the market amidst the slow, pre-summer season. Chinese makers' shipments thus increased compared to the first quarter of 2002.
In addition to analysis of the Taiwanese and Chinese desktop PC industries in the first half of 2002, this report will examine moves made by various manufacturers to counter the replacement of desktop PCs by other form factors, as well as discuss the likelihood of competition from Korean players and EMS providers.
Changes in the Competitive Landscape
While the HP-Compaq merger in May of 2002 resulted in the formation of the world largest PC vendor, a multitude of uncertainties had a negative impact on the company's market share in the second quarter of 2002. Conversely, number two vendor Dell experienced slight growth, further closing the gap in market share between these two companies. HPQ's future success in maintaining its lead will depend heavily on the company's ability to develop new products and market strategies to win the favor of consumers.
The HP-Compaq merger has resulted in a much higher degree of industry concentration, putting increased competitive pressure on other international brand-name vendors. This environment could instigate mergers between other companies.
Desktop replacement effect
In addition to the maturation of desktop PCs, the corporate market has seen increasing demand for notebook PCs at the expense of desktops, resulting in the ever-shrinking growth rate of the Desktop PC market. Because desktop PCs already account for over 70% of the PC market, desktop makers are continually thinking of methods to stimulate consumer sales. The course of desktop development has witnessed constant upgrades in product features and external design, as well as a steady trend toward miniaturization.
Ever since the 2001 release of ECS's desktop solutions notebook PC, the DeskNote, this new product concept has created quite a stir; it was quickly well received in the market. In 2002, this product has attracted makers such as Foxconn and Shuttle. Asus is also planning the release of an own-brand desktop solutions notebook PC for the end of 2002. Given the company's high degree of vertical integration in China, as well as its notebook and motherboard integration capabilities, the release of this product will likely provoke a few changes in the market.
Every company takes a difference stance on whether to classify these new product concepts as notebook PCs or desktop PCs. For example, Asus considers its product to be an LCD PC with a notebook appearance and in the future will separately create a product line which the company will treat as a mobile PC. To further expand the market, Asus will use a sales strategy and service model totally different than that used for notebook PCs, treating the LCD PC as a replacement product for desktop PCs and targeting the desktop PC market. Asus also plans to integrate its notebook PC and motherboard resources.
ECS has also released an LCD PC, dubbed AIO. This product employs an LCD monitor with a desktop PC body, emphasizing a design that enables the user to perform do-it-yourself CPU, hard drive, and DRAM module upgrades. An opening in the rear of the case allows for hardware installation and maintenance with a degree of ease not possible with typical desktop PCs.
Competitiov From Korean and EMS Manufacturers
Although Korean and EMS providers are building production sites in China, the Taiwanese desktop PC industry still possesses certain advantages: a complete value chain as well as strong design and logistics capabilities. Korean makers, aided by government policies, have been steadily transferring product R&D to notebook PCs, affording Taiwanese motherboard makers a gradually increasing number of orders.
In the past, EMS providers maintained superior manufacturing capabilities, but their research and development capabilities could not match those of Taiwanese players. Because Taiwanese manufacturers have amassed strong capabilities from components manufacturing to assembly, international brand-name vendors look upon them rather favorably. Dell's transfer of production from in-house to Taiwan is one example. Given these conditions, in the future, the Taiwanese desktop PC manufacturing industry will account for an increasing percentage of worldwide production.
The Desktop PC Industry in China
Nurturing themselves with strong domestic demand, Chinese desktop PC makers saw impressive growth in 2000; however, an overly optimistic assessment of PC market demand brought about heavy competitive pressure, thinning profit margins, and even resulted in losses when demand did not meet expectations in 2001. Dell, with its strong competitive advantage gained through superior cost control, also heavily impacted the Chinese desktop PC industry. As WTO ascension breaks down protective government policies, Chinese desktop PC industry players will need to boost their core competitive advantages to meet the challenges posed by international brand-name vendors.
Chinese household appliance giant, Haier, has faced operational problems and relatively low shipments due to competition from numerous other domestic PC makers. As the company's fixed production costs are rather low, to boost its competitive advantages Haier has adjusted its production sites and taken the lead in outsourcing production. While other leading Chinese makers recognize the necessity of these measures, they cannot give up certain nationalistic responsibilities toward maintaining large-scale manufacturing. It is expected that in the future Chinese PC makers will outsource value-line PCs to preserve competitiveness.