Outlook for Taiwan's PC Industry: Current Status and Future Prospects
April 16, 2001 (TAIPEI) -- Most of the latest industry data and media reporting about Taiwan's manufacturers suggests that inventory adjustments for desktop PCs have mostly been completed, and that surplus stocks of notebook PC products are close to being cleared.
However, there are still no signs of a rebound in the U.S. market, which accounts for 40 percent of demand, so it's still hard to imagine a scenario under which conditions surrounding the Taiwanese PC industry will soon take a rapid turn for the better. The following report details the current state of each sector.
In order to grasp the overall condition of the market, this analysis splits Taiwan's PC industry into three parts; (1) motherboard makers, (2) desktop PC makers, and (3) notebook PC makers.
The motherboard manufacturers, the first group, mainly make products for sale under their own brand names in the do-it-yourself (DIY) market, with original equipment manufacturing (OEM) only accounting for a small part of production. In the DIY market, enthusiasts buy individual components and then assemble a PC on their own, or stores build custom machines to the specifications of customers using the components the customers ask for.
The desktop PC makers, the second group, mainly supply white-box machines to the United States market on an OEM basis -- i.e. for sale under the brand names of major PC vendors such as Compaq Computer Corp., Dell Computer Corp., NEC Corp., and Fujitsu Ltd.
The third group, the makers of notebook PCs, produce PCs for the United States and Japanese markets, also on an OEM basis.
The only group whose market seems to be showing improvement is the motherboard makers. According to the sales figures for February 2001, ASUSTek Computer Inc., which mainly supplies products to the DIY sector, saw its sales increase 65 percent from the same month last year and 41 percent from January, while sales of Giga-Byte Technology Co., Ltd., were up 162 percent year-on-year and 4 percent month-on-month.
Similarly, sales look good at Micro-Star International (MSI), which saw a 52 percent rise year-on-year, but a slight 4 percent drop from January; ABIT Computer Corp., which marked increases of 75 percent year-on-year and 23 percent month-on-month; and AOpen Inc., with sales up 89 percent year-on-year and 39 percent month-on-month. Inventories at these motherboard makers have already returned to normal levels and most have returned to their usual patterns of purchasing components, while keeping an eye on market conditions.
The group that has seen its market hit bottom but has yet to experience many clear signals of a pickup in demand is the desktop PC manufacturers. Sales figures for February point to a mixed bag of results, making it difficult to say where the market is heading.
Sales at Acer Inc. fell 19 percent year-on-year, but rose 32 percent month-on-month, MITAC International Corp. saw its sales rise 11 percent year-on-year, but fall 5 percent month-on-month, whilst First International Computer Inc. (FIC) chalked up a double gain of 51 percent year-on-year and 28 percent month-on-month. However, the improved figures are thought to be due mainly to sales of other products -- workstations and servers at MITAC and notebook PCs at FIC -- rather than a strong rebound in demand for desktops. Demand in the desktop market is still thought to be flagging somewhat, despite a slight stabilization owing to reductions in the prices of DRAM chips, because sales results at many other firms that make desktop-related components and peripherals -- CD-ROM drive, PC housing, mouse, SPS, etc. -- are still mixed from company to company.
Industry watchers think the group made up of notebook PC manufacturers is soon to see its market bottom out and take a turn for the better. In fact, February sales figures at some firms already seem to be pointing to a strong comeback. Sales at Quanta Computer Co., Ltd. were up 30 percent year-on-year and 28 percent month-on-month, Compal Electronics Inc. was up 22 percent year-on-year and 15 percent month-on-month, and Inventec Corp. was up 4 percent year-on-year and 41 percent month-on-month. Arima Computer Corp. seems to have reached its bottom, too, with sales down 59 percent year-on-year, but up 44 percent month-on-month. Sales at some notebook PC component makers also were strong in February, signaling a long awaited rebound in demand for components.
Speedtech Co., Ltd., a maker of connectors, experienced sales growth of 59 percent year-on-year and 43 percent month-on-month, and Sunonwealth Electric Machine Industry Co., Ltd., which makes cooling fans, similarly saw its sales rise 49 percent year-on-year and 16 percent month-on-month.
It's still difficult to say that orders for LCD panels are picking up, but it is thought that inventory levels at the firms that buy them on an OEM basis are at least heading back to normal. Things may become clearer over the next four to six weeks.
Judging by this data, PC inventory adjustments in Taiwan apparently have almost been completed, but through the end of April it will be necessary to look closely at what each company says when they close their books and report their financial data for the year. Such sales are buoyed by demand from Europe and other Asian countries. Sales at VIA Technologies Inc., a major chip set maker, are thought to have improved recently due to orders from motherboard manufacturers whose products are in growing demand in the European and Asian markets.
However, U.S. demand for products from motherboard makers and white-box desktop PC makers is continuing to be sluggish. This is especially serious for the desktop PC makers because the United States accounts for 40 percent of the global market, but high growth rates there can no longer be expected for structural reasons -- namely, that the market is becoming increasingly saturated, with 60 percent of people already being PC users.
Another reason is that many European and Asian manufacturers -- which are customers of Taiwanese firms -- make products that are exported to the U.S. market, so if the U.S. economy continues to stay lackluster, then Taiwan's exports to those customers in Europe and Asia will eventually suffer, too. And remember, if we assume that the U.S. market won't recover anytime soon, and throw possible economic slowdowns in Europe and Asia into the equation as well, then the current upturn in sales being experienced by Taiwan's motherboard makers also will likely turn out to be very short-lived.
The outlook for notebook PCs, on the other hand, could be brighter if major vendors reduce prices to stimulate demand in Europe and the United States.
Three reasons exist for thinking that this could be possible: (1) the use of notebook PCs is still not as widespread in Europe and the United States as it is in Japan, (2) it is likely that retail prices could be slashed due to reductions in the cost of main components such as thin film transistor liquid crystal display (TFT-LCD) screens, and (3) potential customers will warm to notebooks more now that they are no longer markedly inferior to the majority of desktops in terms of performance. It looks highly likely that prices of notebook models currently in the US$1,500-$2,500 range will soon fall to the range of US$1,000 to $2,000.
Notebook PCs have many merits for both business users and ordinary consumers, so there is still a lot of room for the market to grow. First, PC makers need to strive stimulate demand by cutting prices, and then they will have to hope that that helps brings about improvements in the state of the general economy and in consumer sentiment. The crucial factor to look for is how far prices will need to come down before demand starts picking up.
Related stories:
Sales of PC-Related Businesses Recover Partially, But Overall Industry Remains Weak
Sales of PC-Related Businesses Recover Partially, But Overall Industry Remains Weak
Taiwan's TFT-LCD Panels Slumping for Notebooks, Up for Monitors
January Sales Hit Bottom for Some Taiwan PC Parts Makers
Taiwan's Notebook PC Sector Sees Higher Sales, Lower Profit Margins
(Yasuo Nakane, Senior Analyst, Daiwa Institute of Research Taipei Representative Office, Special to Nikkei Microdevices) |
