Wed, Aug 09, 2006 page12

• Asustek, Gigabyte forge venture

  GETTING TOGETHER The motherboard makers have teamed up in an NT$8 billion venture but denied that it was the result of a burgeoning challenge from Hon Hai

  • By Jason Tan / STAFF REPORTER
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  Asustek Computer Inc (華碩電腦), the world's largest motherboard maker, yesterday announced plans to pump NT$4 billion (US$122 million) cash into a new joint venture with smaller rival Gigabyte Technology Co (技嘉科技).

  Scheduled for official operation in January next year, the new entity will represent a total investment of NT$8 billion, with the remainder of the funds to be sourced from Gigabyte's asset selling and cash, company officials said.

  Gigabyte's own-brand motherboards and graphics cards businesses, will be spun off to form the new venture, with the company holding 51 percent and Asustek taking 49 percent.

  "Asustek and Gigabyte have been focussing their efforts on their own brand development. Better integration of resources will create a positive outlook for the mature motherboard industry," Asustek's chairman Johnny Shih (施崇棠) told reporters at a press briefing.

  With multi-core processors in the pipeline and the rising importance of desktop computers, Shih said there are more innovations to come in the motherboard industry.

  According to Taipei-based Market Intelligence Center (市場情報中心), the total output of the global motherboard industry shrank to US$3.67 billion during the first half of the year, from US$3.75 billion during the same period last year. Output also declined last year by 2.2 percent to US$8.09 billion, it said.

  In view of the slowdown, the new deal will benefit both firms for example, in terms of market share, where both have commanded over 50 percent in combined shares in major markets, Gigabyte's chairman Dandy Yeh (葉培城) said at the same briefing.

  "We hope severe price slashing will not happen [after both firms have joined forces]" he said.

  Yeh brushed off speculation that the collaboration was the result of the rising threat from Hon Hai Precision Industry Co (鴻海精密), the nation's biggest electronics equipment maker.

  Last year, Hon Hai shipped a total of 40 million motherboards, including 6 million own brand units, practically becoming the world's second-largest motherboard maker.

  Asustek is expected to ship 62 million motherboards this year, with 44 million branded units, while Gigabyte will churn out a total of 18 million with 10 million carrying its own logo.

  The new venture will facilitate a reduction in production costs for Gigabyte's own-brand motherboards, as production is likely to be outsourced to Asustek, which has huge economies of scale, said Molly Lin (林美如), an analyst with Polaris Securities Co (寶來證券).

  The deal will also enable Asustek to have a stronger say in its motherboard selling prices, as it now has fewer rivals in the industry, and need not worry so much about the prices of rival products on the market, she added.

  Asustek will have a total solution, she said, as Gigabyte's motherboards will be aimed at the mid to high-end segments, with the low-end to be geared toward its subsidiary, ASRock (華擎科技).

  But as the margins of Gigabyte's branded motherboards will be split by both entities, Gigabyte will not benefit unless the new venture is able to double its current margins, Lin said.

  Asustek's shares closed up 1.4 percent to NT$74.2 on the Taiwan Stock Exchange yesterday, while Gigabyte's were up 0.9 percent to NT$22.1. The announcement of the new venture came after the market closed.
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