October 6, 03

Rising price competition is forcing major notebook computer brands to investigate every way to cut corners when calculating manufacturing costs. Instead of leaving the purchase of components to their OEM, ODM or contract manufacturer, seeking direct cooperation with component suppliers seems to be the latest strategy in penny pinching, sources from the Taiwan notebook manufacturing industry say.

More often than not major brands bypass contract manufacturers and source and order components directly from suppliers to be shipped to their contract manufacturers plants, who formerly bought at their discretion and profited from that.

Taiwan oldtimers told this writer, tongue-in-cheek, that this typical ethnic approach to cut out the middleman has been long overdue in the computer field, considering that foreign buyers in cutthroat businesses such as textiles use this way of controlling downstream supply markets and practically determining their suppliers profits since more than a quarter of a century already.

According to insiders at major notebook manufacturers in Taiwan, major overseas brands have already controlled the profit margins from expensive key components like CPUs, hard disks and LCD panels, but now increasingly sink their fingers in the pie by eyeing cheap components like keyboards, heat sinks, printed circuit boards and computer cases.

To further bring down the sticker price, some major brands are even considering replacing traditional notebook makers with electronic manufacturing services, so-called EMS companies that are in no specific lines of products but command over manufacturing equipment to produce nearly everything according to order.

Local reports say that these approaches have caused serious concern among Taiwan notebook suppliers, claiming that replacing notebook manufacturers with their specific know-how by nameless EMS companies has already proved unsuccessful in the past. They add that major brands, including Dell, shifted all of their orders to Taiwan notebook makers from EMS providers like SCI Systems and Jabil Circui already by 2001, because this type of company proved to be less competitive in systems integration, including material and cost controls and production flexibility, as well as in on-time shipments.

In opposite views, major brands are considering to resume the old business model as they are more desperate today to cut prices than before. In addition, they say, notebook computers have become a more mature product, which means that production problems are now less.