Gigabyte joins motherboard war

Gigabyte Technology Co (技嘉科技), which had previously said it would not cut prices for its high-end motherboard products, announced yesterday it would joining the price war next year in order to fend off competition and to safeguard its market position.

"We're forced to join the war, as our major rivals already cut prices earlier this year. If we didn't do it, we would have no market share, which would mean no profit at all," Gigabyte spokesman Tony Liao (廖期立) told the Taipei Times yesterday.

Despite worries that expanding its market share will be at the expanse of profitability, "we're attempting to reduce the impact of gross margin decline by increasing shipments," Liao said.

Gigabyte currently has about a 10.3 percent market share in the Greater China region, behind Elitegroup Computer Systems Co's (精英電腦) 13.6 percent and Asustek Computer Inc's (華碩電腦) 23 percent, according to statistics provided by the Market Intelligence Center (MIC, 資策會).

Gigabyte didn't elaborate on how wide the possible price cuts would be for its motherboard-product lineup yesterday.

But its announcement weighed on Asustek and Gigabyte shares, which fell by 1.29 percent and 1.68 percent, respectively, to close at NT$76.5 and NT$58.5 each on the TAIEX.

Gigabyte's announcement came amid forecasts of quickening growth for the global motherboard industry next year. Global shipments of motherboards used for desktop computers are expected to rise by 8 percent to around 14 million units next year, according to MIC. Global motherboard shipments grew by less than 6 percent to 13 million units this year from last year, it said.

The price war among the nation's motherboard manufacturers -- initiated by Asustek Computer Inc (華碩電腦) during the first half of the year -- may lead to a further erosion of profitability along with a lower gross margin and a reshuffle of the industry, analysts said.

"The stiffer price competition next year will lead to a decline in the already razor-thin gross margin and will prompt a faster consolidation of Taiwan's struggling motherboard industry," said Grace Chen (陳星嘉), an analyst at Insight Pacific Investment Research (月涵投顧).

Chen expected Micro-Star International Co (微星) to suffer the brunt of the price war, citing Micro-Star's weak brand strength.

But another analyst said it is still too early to say which company will sustain the most serious blow.

"We won't have a clearer picture until 2005," said Jones Wang (王源錦), a deputy manager of ABN-ABRO Asset Management Taiwan. But the sector is facing a bigger decline of gross margins, as the average gross margin for manufacturers may slide to around 5 percent next year from about 8 percent this year, he added.

Signs of consolidation within the sector began to emerge in the middle of this year, with some small motherboard plants already starting to farm out production at lower costs and focus entirely on boosting branded product sales in Europe's clone markets, said MIC analyst Chris Wei (魏傳虔).

"A shakeup in the industry is foreseeable, but it will only mean product diversification for those motherboard companies, rather than a complete disappearance," Wei explained.

Motherboard products only accounted for 30 to 40 percent of Asustek's sales, while notebook computers contributed the bulk of its sales this year, said a company official, who requested anonymity.