Smaller Computer Firms Face Fight for Survival in Taiwan

Local second-tier computer makers are faced with a new battle for survival, with the intensified competition expected to squeeze them out of business if they do not change, industry watchers said.

"With smaller economies of scale and weaker research and development [R&D] resources, more smaller players will go under," said Allan Pu, an analyst with SinoPac Securities Corp.

Taiwanese makers produced 86.5 percent of the world's laptop computers in the first quarter of this year, according to figures from the Taipei-based Market Intelligence Center.

However, the market is largely dominated by the top five makers, namely Quanta Computer Inc, Compal Electronics Inc, Inventec Electronics Corp, Wistron Corp and Asustek Computer Inc.
The rest of the market was left to a horde of second-tier players including Clevo Co, Mitac Technology Corp, Arima Computer Corp, First International Computer Co and Gigabyte Technology Co.

Stiff competition has added pressure to mid-tier firms as the top makers can easily grab long-term orders ahead of the smaller players with their larger scale, stronger R&D capabilities and more mature technologies, Pu said.

A case in point is First International Computer, which lost its orders from NEC Corp this year to Quanta, due to the former's loss of R&D personnel, he said.

With competition heating up, the days when second-tier makers could reap high margins of nearly 10 percent for specific laptop models are history, and now nobody can escape from the low 5 percent margin plight, he said.
Therefore, "smaller players have to resort to mergers and acquisitions, or turn to other industries rather than just focusing on the contract notebook-making business," Pu said.

The consolidation steps were accelerated last Monday when Elitegroup Computer Systems Co. announced that it will acquire rival Uniwill Computer Corp.
With the release of 1.85 billion new shares, Elitegroup will take over Uniwill through a share swap, with one of its shares exchanging for two of Uniwill's shares.

On the other hand, makers such as Twinhead International Corp and Mitac Technology decided to produce computers for military use, in an attempt to reduce risks in the highly competitive consumer and commercial notebook production businesses.

Source: Taipei Times