Sept. 2, 2002

Since the Taiwan government officially approved the relocation of manufacturing know-how for high-tech notebook computers to Taiwan-invested factories in China,
and major makers having already invested there heavily, local manufacturers now conclude that China could serve as prime base for OEM and ODM orders, while Taiwan remains suitable for manufacturing niche products for the clone market.
The rapidly maturing notebook manufacturing environment in China is now a cost-efficient place to fulfill large, uniform specification OEM and ODM orders from the top ten notebook brands of the world.

Several high ranking executives from Taiwan makers admitted that China's manufacturing environment still lags behind when compared to Taiwan's. But that would not hurt China's potential for the mass-volume business, as long as there were enough people to work overtime and pre-assembly preparations were done carefully. Meanwhile, Taiwan would remain the place for manufacturing small, flexible specification models with high profit margins.

According to the Market Intelligence Center (MIC) Taiwan notebook makers have been boosting production in China, from an initial proportion of less than 1% to a projected 24% this year, with 50% expected for 2003.

Up so far, Taiwan has been leading in the global shipment of notebook computers for many years because of the country's complete and flexible supply chain. From electronic components and packaging materials to ICs and PCBs, which are said to be the weakest link in China's supply chain, everything can be delivered in Taiwan on a same-day basis, sometimes even within hours. Taiwan's mature supply chain, refined over the years, is hard to beat, insiders say.

To take advantage of low-cost operations in China, both Dell and the new Hewlett-Packard company have simplified their notebook production lines, thus streamlining OEM/ODM manufacturing.

First International Computer (FIC) is reported to move 75% of its notebook production to China in 2003. Their current plants in China operate at two thirds of planned capacity, with most of the output sold to NEC. FIC, without giving an exact schedule, hopes to lift the annual output to over 1,2 million units and also seeks to take advantage of the large, low-cost talent pool to add to its research efforts in an attempt to cut developing time of a new product to less than six months.

In related news, intensive struggling is under way among Taiwan makers for the 2003 NEC notebook orders. Several Taiwan contract makers, including Compal and NEC's current suppliers FIC, Quanta and Arima are making efforts to win contracts for the period of January to June 2003. This could hurt FIC's position of a 65% share as supplier of the estimated 1 - 1.2 million notebook computers shipped by NEC this year. Insiders say that Quanta, though a relatively new NEC supplier, is a strong contender for the 2003 contracts.

FIC said that it expects to ship more than 800.000 units under NEC brand and will maintain strong relations with that customer.