Abstract
The Greater Chinese motherboard industry witnessed healthy year-on-year growth in both shipment volume and value in the second quarter of 2002, posting rises of 16.1% and 9%, respectively. While the second quarter is traditionally the slowest season for the motherboard industry, some Greater Chinese manufacturers were actually able to continue growing; the long awaited Intel 845G series chipsets were finally released to the market, sparking an increase in OEM orders.
Following these developments, demand in the OEM market picked up whereas the clone market languished, in part due to European focus on the FIFA World Cup tournament. In conjunction with the rise of Foxconn, these events contributed to some radical changes in Greater Chinese motherboard industry rankings, with manufacturers that focus on OEM production moving up in the standings.
This report will provide a comprehensive review of the Greater Chinese motherboard industry's performance in the first half of 2002. In addition, MIC will explore the effects of price cuts among upstream chipset suppliers and the shake up in the PC industry following the HP-Compaq merger.
Intel to Lower CPU Prices in 2H 2002
Intel had originally planned to implement its autumn price decrease on October 27, 2002, but in July the company announced that it had moved the date ahead to September 1. The reason for this decision was that second quarter profits indicated that demand in the worldwide PC market was still slack. The most dramatic price cuts will be for high-end desktop CPUs and mobile CPUs, with reductions for specific products exceeding 50%. With demand for lower-priced products relatively strong, Intel is seeing less demand for is more advanced, faster products. Intel's plan is to continue stimulating demand by lowering prices. Lowering the price gap between desktop CPUs and mobile CPUs accelerates the replacement of rate of notebook PCs, which offer a higher profit margin.
Lowering prices in the beginning of September will have a limited impact on third quarter performance, with most effects being felt in the fourth quarter. The most important influence on the market in the third quarter will still be back-to-school demand. In the fourth quarter of 2002, it is still not expected that Intel's planned decrease in CPU prices will spark a major increase in demand because CPUs only account for a small percentage of overall PC costs. The price of Pentium 4 CPUs will come down approximately US$50, but that represents only a fraction of the cost of a PC. However, it is possible that the price of PCs will fall in the latter half of the year, as the prices of other components, such as DRAM and LCD panels, have been in flux throughout 2002.
New HP's Market Share Sliding
The gap in PC shipment volume between the new HP and Dell narrowed noticeably in the second quarter of 2002. However, that change was mainly a result of HP losing market share to second tier vendors and players targeting the clone market; Dell was not able to take advantage of the opportunity to increase its market share. These developments in the PC industry hold the following implications for Greater Chinese motherboard manufacturers:
1. Dell has continuously expanded the scale of its orders to Greater Chinese motherboard makers in 2002. As Dell is expected to at least maintain its current share in the PC market, or even improve its standing, those OEM/ODMs that have a close working relationship with the PC giant figure to benefit, while those motherboard makers doing business with HP will be more vulnerable.
2. The second half of 2002 will present an excellent opportunity for second tier brand name PC vendors and makers that produce for the clone market to continue to increase market share. Greater Chinese motherboard manufacturers are expected to benefit from this trend because they supply nearly all of the motherboards required by those two groups.
The new HP's loss of market share should not have much of an impact on the Greater Chinese motherboard industry's shipment volume because any adverse effects will be counteracted by orders from Dell, second tier brand name vendors, and players in the clone market. The only noticeable change for Greater Chinese motherboard makers will be in industry rankings, as changes in HP's purchasing plan will result in the company releasing fewer orders. Motherboard manufacturers who produce for second tier PC vendors will have an opportunity to increase volume and improve their standing in the industry.
New Entrants
New Greater Chinese motherboard makers, Asrock, Hoxtek, and Albatron, will have a noteworthy impact on the industry in the second half of 2002, when all three achieve mass production. These three new entrants target different segments of the motherboard market, but all plan to undersell existing players in their respective segments. The result should be an intensification of price competition throughout the Greater Chinese motherboard industry the second half of the year.
All three new entrants will pursue a similar production strategy. Asrock and Hoxtek, subsidiaries of Asus and Foxconn respectively, will make use of their parent companies' factories rather than maintaining their own facilities, effectively separating the production and marketing sides of the business. Albatron currently has its own production facility located in the Taoyuan, Taiwan, but in the future the company will outsource production to a motherboard maker that undertakes manufacturing in China. With the current state of excess production capacity in the Greater Chinese motherboard industry, it is imperative for makers to find ways to maximize the output of their facilities. The strategies employed by Asrock, Hoxtek, and Albatron signal a trend in the Greater Chinese motherboard industry of gradually separating the development and marketing sides of the business.