Mar. 20, 2001

According to insiders, profits in notebook computer manufacturing have gone down from 10 - 15% only two years ago to a razor-thin 2 - 3.5% range today, forcing makers to achieve economy of scale by increasing volume. This trend, of course, leaves it's marks on the structure of the industry. Many makers of fine products of yesteryear have gone down the drain, leaving the field to a few big streamlined companies. An analysis of the present state:

Although Taiwan has one of the world's top notebook industries, first-tier manufacturers such as Quanta, Acer, Compal, Inventec and First International Computer now hold almost all the major orders from international PC giants.

Second-tier manufacturers are facing a grim future, and many will end their notebook operations and seek opportunities elsewhere. Other will adapt to this competitive environment through mergers and acquisitions.

Latest news from the battle field is the announcement of a marriage of two companies to be effected about mid-may this year: Second-tier makers Twinhead International and Uniwill computer will merge thru a stock swap.

In July 2000, Twinhead had invested more than 200 million Taiwan-Dollars for a 9% stake of Uniwill to set the plan in motion. Twinhead lost more than NT$ 500 million and Uniwill more than NT$ 400 million last year.

Notebook manufacturing is a capital-intensive industry. In general, companies have to produce and sell about 20,000 notebooks per month to break even. To achieve this goal, it needs to invest in areas such as product development, component inventory and assembly, which means that about NT$ 2 billion (1 US$ = approx 32 NT$ ) in operating capital a month is needed.

Hence, first-tier makers with a capitalization over NT$ 10 billion have dominated the Taiwan notebook market. Also, these companies have close relationships with the global PC giants, making it very difficult for smaller companies to win big contracts.

To survive, second level companies began supplying local distributors or transferred part of their capacities to LCD and IA production. As an example, Clevo recently lost its last major notebook OEM contract and consequently went into LCD and desktop computer production.

The announced merge of Twinhead and Uniwill is another sign of the times.
Alpha-Top still holds Apple orders, but has been unable to win new contracts.
With Lite-On wishing to release its 40% shareholding in the company, according to local analysts, the future of Alpha-Top is uncertain.

Following in the footsteps of Asustek, other motherboard makers made inroads into the notebook industry as well. However, companies such as Gigabyte and Soyo lacked the resources and commitment to succeed. Gigabyte has since lost NT$ 200 million and decided to officially end its notebook operations, the Taiwan economic press reported.

Asustek is the probably only exception among the second-tier manufacturers. IBM and Compaq are the company's current notebook clients.