Abstract
As was the case through most of 2002, the Greater Chinese motherboard industry did not display the seasonal performance seen in previous years; fourth quarter shipments were lower than expected due to weak corporate demand and shifting consumer preference to consumer electronics. Although low in increases volume plagued the global desktop PC market throughout 2002, the Greater Chinese motherboard industry saw comparatively high cumulative shipment volume growth over the course of the year. However, as the price of chipsets remained low, shipment value fell, casting a pall over the prospects for the industry's future development.
In 2003, chipset prices are anticipated to see a sustained fall. Additionally, Taiwanese chipset makers will likely begin to adjust their strategies, presenting a host of variables that will determine the competitiveness of the chipset industry. Such variables are expected to have a key impact on the performance of motherboard makers.
The strong growth of leading international vendors in 2002 has also brought about an increase in customer concentration among motherboard makers. At the same time, several major Taiwanese contract manufacturing conglomerates are increasingly focusing on manufacturing for top vendors, and relationships with customers are likely to become yet more stable in the future. Once these large motherboard makers have secured a steady supply of contracts they will be able to achieve economies of scale, which can in turn be leveraged to build a competitive advantage in branded motherboard production, presenting a yet greater threat to smaller manufacturers.
Chipset Industry Rife with Variables
Although an effective strategy has enabled Intel to temporarily re-establish dominance in the chipset industry, Taiwanese chipset suppliers have now started to adjust their own strategies. With the downturn in the global semiconductor market, wafer foundries such as UMC have been suffering from low capacity utilization rates; at the same time, companies such as SiS and Ali have been experiencing difficulties in cost and production capacity. Wafer foundries and chipset makers are now starting to form alliances. Such vertical integration should give the Taiwanese chipset industry an even greater cost advantage and hence improve the industry's competitive strength. Chipset makers are also starting to diversify, bundling more peripheral chips, and in some cases offering total solutions to strengthen relationships with motherboard manufacturers.
With the Pentium 4 platform reaching maturity and with increased demand for the replacement of existing PCs in the corporate market, demand for chipsets which integrate graphics chips will become very strong. Leading graphics chips suppliers such as ATI and nVidia, which have already starting launching integrated chipsets, will become more influential in the chipset industry. Although Intel will remain a powerful force in the chipset market throughout 2003, a number of variables remain. Combined with the variety of relationships that exist between motherboard players and chipset suppliers, the motherboard industry is likely heavily impacted by chipmaker performance.
Manufacturers Driving for Higher Vertical Integration
Following the merger between HP and Compaq and with Dell continuing to enjoy rapid growth, demand for motherboards is becoming increasingly concentrated. At the same time, a number of large ODM/OEM business groups are being formed by Taiwanese system manufacturers and leading motherboard manufacturers; examples include ASUS, Foxconn, Mitac and FIC. All of these groups have extensive production capacity in China, giving them the capability to take on large OEM orders. They also have overseas assembly facilities, allowing them to undertake full-system shipment from facilities close to the target market in line with customer' requirements.
In the future, while the leading PC vendors may switch outsourcing partners, as only a limited number of manufacturers are capable of processing large orders, the majority of contracts will still go to the same small group of manufacturers. These conglomerates will thus maintain a certain scale of production, and will be able to leverage economies of scale to expand into other IT products. They may even be able to exploit lower materials procurement costs to cut branded motherboard prices, making it more difficult for smaller manufacturers to survive in the clone market.
Diversifying in Unison
The global motherboard market offers only limited potential for future expansion. In order to maintain revenue growth, all motherboard manufacturers are diversifying their businesses. Certain players have expanded horizontally into new product areas such as optical disk drives, monitors, and barebone PCs, leveraging established brand names in the motherboard market. Motherboard makers can thus satisfy customers' demands for one-stop shopping, while also making full use of brand value to boost revenue.
Other manufacturers are leveraging existing technical capabilities to move into the production of high-growth products. Most motherboard makers' competitive advantage lies in their computer system integration and design capability. Faced with the prospect of limited growth in the desktop PC market, one way in which motherboard manufacturers are able to diversify is to exploit their existing capabilities to move into new products with high growth potential, such as notebook PCs, Desktop Solutions Notebook PCs, Tablet PCs, PDAs, and servers. In addition to possessing the computer system technology with which motherboard makers are already familiar, such products offer higher ASP. If a manufacturer succeeds in developing these new products, they could soon come to account for a higher share of revenue than motherboards, enabling a successful and smooth transformation.