May 11, 2001

Nearly all the well-noted international vendors of servers, including Compaq, Dell, HP, IBM, Fujitsu, and NEC assign the production of their servers to Taiwan's personal computer makers. Market insiders observe that Taiwan has the potential to become the world's server manufacturing center. A server, which provides services to other computers, is dedicated to perform the functions of a specific and dedicated task such as sending e-mails, and is usually preceded with the function or action it performs. For example, an e-mail server serves as a central processing mechanism for sending e-mails. A server, which controls interaction with the Web, is called a Web server. Because of the wide use of the Internet and increasing demand of data communication, the long-term demand for servers on the world market is growing. According to a Dataquest survey, the shipment of servers in the first quarter of this year hit 988,000 units, a 17.6 percent increase over that of the same period of last year because of the increasing demands from Europe and Japan.

In terms of the market share, Compaq led the pack as the No. 1 supplier of servers, taking 25 percent of the world server market, followed by Dell with 16.9 percent, and IBM with 16.3 percent, according to Dataquest. The price cuts made by Dell in the first quarter made it the server provider with the highest growth rate among the top five server vendors. HP scored the lowest growth rate in the first quarter because there were still defects in its products.

According to the local economic press, Arima computer Corporation, a professional ODM of computing products including Notebook PCs, LCD PCs, Server/Work Stations, PDAs and Internet Appliances, is expected to register particularly impressive growth rates in its server output this year. The current monthly shipment of its servers is 2,000 to 3,000 units, which would become 10,000 units in the second half of this year, and 30,000 units the fourth quarter this year. Monthly shipment would probably amount to 100,000 units by next year.

Manufacturing of servers has become a high priority issue for Taiwan manufacturers due to a still high profit margin.. The international demand for servers has risen I step with the popularity of the Internet and the development of wireless communications. To lower costs, international computer companies are expected to increase their outsourcing, and eager-and-flexible Taiwan should again be their major place to go.

According to sources in Taiwan, the margin for server production ranges from 20% for motherboards and barebone systems to 30-40% for complete models.

Taiwan server manufacturers Acer, MiTAC, First International Computer (FIC), Quanta, Inventec, Arima, and Asustek all hope to benefit from the increased contract business.

MiTAC expects to produce 500,000 servers fro Sun Microsystems this year; Inventec will turn out approx. US$547 million worth of servers for Compaq this year; Arima will expand its contract sales to NEC; and FIC plans to set up a new department to vie for server orders.

MiTAC is the most aggressive firm in the server field. The company supplies servers to HP, Compaq, and Sun Microsystems, which was the fifth-largest server maker in the first quarter of this year.

FIC said it would concentrate on the production of servers this year. The company shipped more than 200,000 servers last year and aims to ship 600,000 unit s this year.

Quanta estimated it would whip up to 300,0000 servers this year, and Arima expects to deliver 150,000 servers ih the period. Acer shipped 500,000 servers last year, mainly to IBM