Local second-tier computer makers are faced with a new battle for survival, with the intensified competition expected to squeeze them out of business if they do not change, industry watchers said.
"With smaller economies of scale and weaker research and development [R&D] resources, more smaller players will go under," said Allan Pu (
Taiwanese makers produced 86.5 percent of the world's laptop computers in the first quarter of this year, according to figures from the Taipei-based Market Intelligence Center (
However, the market is largely dominated by the top five makers, namely Quanta Computer Inc (廣達電腦), Compal Electronics Inc (仁寶電腦), Inventec Electronics Corp (英業達), Wistron Corp (緯創) and Asustek Computer Inc (華碩電腦).
The rest of the market was left to a horde of second-tier players including Clevo Co (藍天電腦), Mitac Technology Corp (神基科技), Arima Computer Corp (華宇電腦), First International Computer Co (大眾電腦) and Gigabyte Technology Co (技嘉科技).
Stiff competition has added pressure to mid-tier firms as the top makers can easily grab long-term orders ahead of the smaller players with their larger scale, stronger R&D capabilities and more mature technologies, Pu said.
A case in point is First International Computer, which lost its orders from NEC Corp this year to Quanta, due to the former's loss of R&D personnel, he said.
"Brand name clients are releasing orders to both top and second-tier makers as they do not want to put all their eggs in one basket. But this doesn't help small manufacturers much in terms of volume or profitability," Pu said.
With competition heating up, the days when second-tier makers could reap high margins of nearly 10 percent for specific laptop models are history, and now nobody can escape from the low 5 percent margin plight, he said.
Therefore, "smaller players have to resort to mergers and acquisitions, or turn to other industries rather than just focusing on the contract notebook-making business," Pu said.
The consolidation steps were accelerated last Monday when Elitegroup Computer Systems Co (精英電腦) announced that it will acquire rival Uniwill Computer Corp (志合電腦).
With the release of 1.85 billion new shares, Elitegroup will take over Uniwill through a share swap, with one of its shares exchanging for two of Uniwill's shares.
Set up in 1998, Uniwill has branched into the digital TV business in recent years, and Taiwan's largest electronics maker Hon Hai Precision Industry Co (
"The acquisition is based on the development trend of the computer industry ? It will lower our production costs through larger economies of scale, and increase our product competitiveness and market share," Elitegroup spokesman Tsai Chia-hung (蔡佳宏) said in a filing to the Taiwan Stock Exchange.
With Uniwill expected to churn out 2 million portable computer units, Elitegroup's total shipments after the merger will soar to 3 million units, turning it into the nation's No. 6 maker -- the strongest in the second tier.
Elitegroup has been aggressively beefing up competitiveness. As recently as October last year it acquired home appliance maker Tatung Co's (
On the other hand, makers such as Twinhead International Corp (
Meanwhile, Clevo -- another smaller player focusing on the niche clone notebook-making business -- has even set its sights on the growing consumer electronics retailing business in China.
After the company's first "Buy Now (
The latest shop will be the company's flagship store and reportedly involves an investment of NT$3.6 billion (US$110 million).
The company is planning to set up another store by the year's end in Changchun, according to a Clevo official, who requested anonymity.
"Channel deployment will be an easier path to take compared to the computer manufacturing business. The control of retail channels will give us a competitive edge," the official said.
As China's economic growth will be driven by domestic consumer spending, the timing of Clevo's channel deployment matches the wave of spending growth there, creating another revenue stream in addition to computer production, the official said.
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