Oct 22, 2001

Several leading IT hardware makers in Taiwan scramble to obtain a slice from OEM manufacturing to Hewlett-?ackard Co. (HP), which recently announced it would merge with Compaq Computer Corp. next year.

According to insider sources in Taipei, HP has decided to release big orders for high-end digital cameras as well as middle- and high-end servers and workstations to cut costs by eleminating own manufacturing. The source told that HP would likely award the server contracts to Inventec Corp. and Quanta Computer Inc. and the workstation orders to Asustek Computer Inc.

The global demand for computer servers has been booming in recent years, driven by Internet and e-business applications. The segment has attracted many local notebook PC makers due to the higher margins offered.

Most industry analysts preict hat the price competition will intensify after the HP-Compaq merger, thus increasing the pressure on companies to outsource production from low-cost OEM suppliers.

Procurement officials of big international brands such as HP, IBM, and Dell already see Taiwan as an ideal OEM base since the well-developed supply chains on the island enable suppliers here to provide integrated production services, industry sources said. Local suppliers will be in an even better position to wind OEM contracts by upgrading their R&D capability and expanding their low-cost production support in China.

At least five Taiwan IT makers are competing for workstation orders from HP, the sources said, including Quanta, Inventec, Asustek, Wistron corp. and First International Computer.

Asustek, which already supplies motherboards for HP workstations on an OEM basis, is reportedly the most likely candidate to supply complete workstations to the new HP

Inventec, a notebook PC and electronic dictionary maker, has been actively developing its server business in recent years. As an OEM server supplier to Compaq, the company is confident about its winning server contracts from the new HP. It is now in intensive talks with the U.S. computer brand.