February. 5, 2002

Due to high demand, the supply of TFT-LCD panels has recently fallen short of demand, resulting in a gradual rise in the price.

Nevertheless, most leading Taiwan notebook computer companies have not raised prices for their products, but have instead passed the additional purchase costs on to their subcontract manufacturers. Brand-name notebook computer companies have urged their Taiwan contractors to lower their quotations, significantly squeezing the profit margins on those notebook computers produced on a contract basis in Taiwan. This has forced local makers to strive to achieve economies of scale to bring down their production costs.

This situation is likely to intensify the competition between industrial leaders and second-line notebook computer companies in Taiwan. Large companies such as Quanta Computer Inc. and Compal Electronics Inc, whose deliveries are expected to account for nearly 40% of the global market in 2002, are likely to do better, while some second-tier companies may be even forced out of business.

Since the fourth quarter of 2001, panel prices have continued to rise. Quanta's spokesman told the press that TFT-LCD panel prices had raised by 10 percent in the 4th quarter alone. However, so as not to depress buying spirit, brand-name companies were reluctant to pass on the incremental costs. Instead, they though it would be better to further lower the price of notebook computers and transfer the additional cost to their subcontractors.

The additional cost is a problem for Taiwan's notebook computer makers. With international notebook computer powerhouses tending to cut their prices, not only subcontractors face the prospects of a sharp fall in profits, but, as the Quanta spokesman said, even first-line makers like his company were feeling the pressure. However, he stressed, market share expansion would be more important than higher profit margins in lean years. He said that continuously growing deliveries could offset the decline in profit margins.

Quanta expects its notebook deliveries to rise to between 6 million and 6.5 million sets in 2002, counting for more than 20 percent of total global deliveries. The company will spare no effort to keep deliveries growing in the hope that mass production will result in economies of scale.

Quanta and Compal have been Taiwan's first and second largest makers of notebook computers for several years. Quanta has set its annual target at around 6 million units delivered, while Compal expects to yield 4 million pieces in 2002.

According to the Market Information Center of the Institute for Information Industry, Taiwan's notebook computer deliveries will reach 17 million units in 2002, so that the aforementioned two companies will account for 60% of Taiwan's total output, a sharp rise from the less than 50% in 2001.