China's largest personal computer (PC) vendor Lenovo Group Ltd's (
The deal not only turned IBM Taiwan's employees overnight from staffers of an eminent foreign company into the nation's first batch of workers employed by a communist Chinese enterprise, but also caused a potential reshuffle in and further consolidation of Taiwan's PC manufacturing business. Taiwan supplies 70 percent of the world's computer notebooks and 30 percent of all desktops.
According to Steven Tseng, (
Tseng said that the Big Blue contributes nearly 70 percent and over 30 percent of Universal Scientific and Wistron's revenues, respectively.
However, Lenovo's suppliers would not necessarily benefit in the long term, he said.
Given the high-quality brand image of IBM, Levono's second-tier and even third-tier suppliers, such as Elitegroup Computer Systems Co (
Lenovo's Taiwanese suppliers include Elitegroup, Gigabyte Technology Co (技嘉) and Micro-Star International Corp (微星), which manufacture the vendor's 3.8 million desktop computers a year, as well as Quanta Computer Inc (廣達電腦), Wistron and First International Computer Inc (大眾電腦) which supply it with 350,000 laptops annually.
IBM's Taiwanese suppliers include Quanta and Wistron, which manufactured half of 4 million laptop shipments this year and USI, Gigabyte, Elite and Micro-Star which made 5 million desktops.
Hon Hai Precision Industry Co (
In the meantime, Quanta and Compal Electronics Inc (
The decrease in the number of customer-end products would in turn spark another wave of price wars in the supply chain, causing already slim margins to deteriorate, Tseng said.
"The sector will see more consolidation through natural market elimination," he said.
"Only companies who are big enough, such as Quanta and Compal, or those focusing on niche markets, like Mitac Technology Corp (
The deal also indicated vendors' efforts to reposition themselves amid declining profitability and slowing growth in the PC sector, which could drive further consolidation in the foreseeable future.
"With about 40 percent of the global market share captured by the top three players, namely Dell, Hewlett-Packard Co and Lenovo-IBM, we expect consolidation in the PC industry to accelerate," Merrill Lynch's report said.
"We might only see five meaningful players in two years' time," it said.