Tech firms vie for market share

Taiwan's two largest makers of motherboards have locked horns in a battle to grab each other's unique market share, officials at Asustek Computer Inc (華碩電腦) and Elitegroup Computer Systems Co (精英電腦) said yesterday.

"The competition is happening now on both sides," said Mike Chou (周昭武), senior vice president at Elitegroup.

Asustek is traditionally strong in high-end motherboard sales, whereas Elitegroup has maintained the top position in cheaper, low-end products. Last November, Asustek launched a low-end brand that is eating into Elitegroup's sales, according to Wang Wan-li (王萬里), a motherboard analyst at Credit Suisse First Boston in Taipei. Elitegroup has now retaliated, launching a high-end brand to compete directly with Asustek's core business.

"Asustek is going from the high-end to the low-end, so Elitegroup has been forced to move upmarket," Elitegroup chairman Johnson Chiang (蔣東濬) told the Chinese-language media yesterday.

New motherboards are already rolling off production lines at Elitegroup Computer Systems.

"We are now producing high-end mainboards and are selling between 7,000 and 10,000 units per month," Chou said. "We hope to be selling 100,000 by the third quarter or early fourth quarter."

But analysts say Elitegroup is facing an uphill battle.

"It will be a little harder for Elitegroup to catch up as they have a reputation for low-end products," Wang said. "It's more difficult to move from the low-end to the high-end as it takes time to prove that the quality of the new products is good enough."

"Elitegroup's customers traditionally bought their products because they were cheap," said William Fong (方偉昌), an analyst at Primasia Securities Co.

"Now if you ask them to pay a premium -- maybe as much as twice the usual price -- to buy high-end products, it may be very difficult to win them over. For Asustek it was easier to launch a low-end product as it is an established brand. As a customer, I would feel that the quality is guaranteed," Fong said.

Increased competition and tighter profit margins have forced motherboard makers to diversify into other product areas.

"The large vendors are much more demanding now and are squeezing margins even further, so motherboard makers are moving from their more traditional card business to systems and notebooks, and are diversifying their product offering," Wang said.

Since January last year, motherboard prices have dropped around 10 percent, according to figures from the government-funded Market Intelligence Center (MIC).

Only yesterday Asustek's chairman Johnny Shih (施崇棠) told local media that he planned to expand into personal digital assistants, graphics cards, Internet communication, optical disk drives and possibly also notebook production in order to ensure the company's profitability in future.

"Asustek is looking at other markets because the motherboard industry is crowded and the PC market growth rate is not as great as before," Wang said. "In the 1990s, the PC market grew at between 20 percent and 25 percent every year, but now it is zero, or even negative growth."

Elitegroup is also looking at new areas, but will not abandon its motherboard core.

"We still believe that making motherboards is a good business," Chou said. "We are still thinking about extending our existing product offering, but that does not mean that we are getting away from our core motherboard business."