Asustek to Buy iBook Plant From Elitegroup
Apr 17, 2003 Ι Industry In-Focus
Ι Electronics and Computers Ι By Quincy, CENS
Taiwan's leading motherboard and notebook-PC maker, Asustek Computer Inc., announced on March 28 that it will soon buy a notebook plant in northern Taiwan's Chungli from Elitegroup Computer Systems Co., Ltd., a leading local maker of motherboards and other information-technology (IT) hardware, for NT$1 billion (US$28.8 million at US$1:NT$34.7).
Asustek's move has attracted close attention from its industry counterparts, since it goes against the growing tide of local IT makers moving production to mainland China.
Company spokesmen said that the NT$1 billion deal will include both the land and production equipment. However, they said that the final figure for the deal, which is expected to be finalized by the end of June and will also encompass the acquisition of materials, components, and product inventories, will be over NT$3 billion (US$86.5 million). The two parties stressed, however, that the deal would not include Elitegroup's iBook contracts with Apple Computer of the U.S. Elitegroup currently makes the Apple notebooks at the Chungli plant.
Asustek vice chairman Tong Tse-hsian claimed that the plant acquisition will help his company effectively boost notebook sales and flexibly adjust production between Taiwan and mainland China.
According to an industry analyst, Elitegroup acquired both the iBook contract orders and the Chungli plant last year, through the acquisition of an affiliate of the local GVC Group. This iBook production accounted for about 40% of the company's revenue in 2002. Currently, the Chungli plant has five notebook-production lines and a monthly capacity of 200,000 notebook PCs. Asustek spokesman Lee Tsu-yao claimed that his company would try to retain all of the 1,300 or so employees at the plant.
Asustek expects to ship 1.5 million notebook PCs, including both contract-produced and own-brand units, this year. Asustek has faced a capacity shortage due to increasing shipments of notebook PCs to Sony of Japan. According to Tong, Asustek currently produces all of its own-brand notebook PCs in Taiwan and makes contract models at a plant in Suzhou, mainland China. The newly acquired plant will help Asustek expand sales of own-brand computers in the future.
Mutual Benefits
Asustek's notebook-PC plant in Peitou, north Taipei, has a monthly capacity of only 60,000 to 70,000 units, far short of the market demand for its high-end notebook models. An industry source says that the purchase of Elitegroup's plant can rapidly and effectively solve the company's capacity shortage and quickly elevate the Taiwan company's market share.
Elitegroup is also expected to win from the deal, by allowing the company to further consolidate its resources in mainland China, where it has set up a vertically integrated manufacturing system. The Taiwan plant, by comparison, is relatively isolated and costs more to run than the mainland factories.
Still, Elitegroup vice president Chen Ming-tsung admits that the Taiwan plant generates about 40% of the company's revenue and about 70% of its total revenue from notebook-PC sales. He says that his company is adjusting its mainland manufacturing scheme to take over the iBook production business transferred from the Taiwan plant. After May, he says, Elitegroup will have a monthly capacity of about 150,000 notebook PCs in mainland China. The company also plans to buy a notebook-PC facility there soon.
Questions Abound
Most industry insiders say the salient issue of the plant sale to Asustek is not the transaction price but what will happen to the contract orders for the iBooks. While Elitegroup has stressed that its iBook contract business with Apple will not change, some sources say that the plant transaction is not as simple as the two parties have claimed, suggesting that the deal might lead to a sharing of PC contract orders between the two makers.
Asustek has kept a tight lid on its future plans for the newly procured plant, saying only that the facility will continue to be used to make notebook PCs. Whether or not the company will make iBooks at the plant remains a mystery.
Many industry analysts doubt that Elitegroup has enough capacity to meet the volume required by Apple. Currently, Elitegroup's Guangdong plant produces mainly Desknote portable PCs (notebook-size PCs with desktop functions), while its Kunshan plant turns out a limited volume of conventional notebook PCs. The analysts question whether Elitegroup's mainland plants have the capacity and technical expertise to satisfy Apple's stringent demands.
Some analysts observe that in the past few years Apple has always ordered its iBooks from whoever has been the owner of the certified production facility in Chungli, leading them to conclude that Apple may also place iBook orders with the new plant owner.
The analysts also note that Elitegroup has many strong local competitors that are able to take over the iBook orders.
One such contender is Compal Electronics Inc., which recently began contract production of PowerBook notebook models for Apple and has expressed an interest in winning the iBook business as well. Compal is a leading notebook-PC contract producer with plants in Taiwan and Kunshan, mainland China.
Another potential competitor is Quanta Computer Inc., which lost the PowerBook order to Compal, and Hon Hai Precision Ind. Co. Ltd., the world's largest maker of barebone PCs, connectors, and game consoles as well as the fourth-largest motherboard supplier.
One insider says that Apple negotiated with Elitegroup over the issue of moving iBook production to mainland China before the plant sale. He predicts that Elitegroup's manufacturing capability and costs in the mainland will be decisive in determining whether it can retain the iBook orders.
Asustek's move has attracted close attention from its industry counterparts, since it goes against the growing tide of local IT makers moving production to mainland China.
Company spokesmen said that the NT$1 billion deal will include both the land and production equipment. However, they said that the final figure for the deal, which is expected to be finalized by the end of June and will also encompass the acquisition of materials, components, and product inventories, will be over NT$3 billion (US$86.5 million). The two parties stressed, however, that the deal would not include Elitegroup's iBook contracts with Apple Computer of the U.S. Elitegroup currently makes the Apple notebooks at the Chungli plant.
Asustek vice chairman Tong Tse-hsian claimed that the plant acquisition will help his company effectively boost notebook sales and flexibly adjust production between Taiwan and mainland China.
Apple`s eBook notebook PC.
Asustek expects to ship 1.5 million notebook PCs, including both contract-produced and own-brand units, this year. Asustek has faced a capacity shortage due to increasing shipments of notebook PCs to Sony of Japan. According to Tong, Asustek currently produces all of its own-brand notebook PCs in Taiwan and makes contract models at a plant in Suzhou, mainland China. The newly acquired plant will help Asustek expand sales of own-brand computers in the future.
Mutual Benefits
Asustek's notebook-PC plant in Peitou, north Taipei, has a monthly capacity of only 60,000 to 70,000 units, far short of the market demand for its high-end notebook models. An industry source says that the purchase of Elitegroup's plant can rapidly and effectively solve the company's capacity shortage and quickly elevate the Taiwan company's market share.
Elitegroup is also expected to win from the deal, by allowing the company to further consolidate its resources in mainland China, where it has set up a vertically integrated manufacturing system. The Taiwan plant, by comparison, is relatively isolated and costs more to run than the mainland factories.
Still, Elitegroup vice president Chen Ming-tsung admits that the Taiwan plant generates about 40% of the company's revenue and about 70% of its total revenue from notebook-PC sales. He says that his company is adjusting its mainland manufacturing scheme to take over the iBook production business transferred from the Taiwan plant. After May, he says, Elitegroup will have a monthly capacity of about 150,000 notebook PCs in mainland China. The company also plans to buy a notebook-PC facility there soon.
Questions Abound
Most industry insiders say the salient issue of the plant sale to Asustek is not the transaction price but what will happen to the contract orders for the iBooks. While Elitegroup has stressed that its iBook contract business with Apple will not change, some sources say that the plant transaction is not as simple as the two parties have claimed, suggesting that the deal might lead to a sharing of PC contract orders between the two makers.
Asustek has kept a tight lid on its future plans for the newly procured plant, saying only that the facility will continue to be used to make notebook PCs. Whether or not the company will make iBooks at the plant remains a mystery.
Many industry analysts doubt that Elitegroup has enough capacity to meet the volume required by Apple. Currently, Elitegroup's Guangdong plant produces mainly Desknote portable PCs (notebook-size PCs with desktop functions), while its Kunshan plant turns out a limited volume of conventional notebook PCs. The analysts question whether Elitegroup's mainland plants have the capacity and technical expertise to satisfy Apple's stringent demands.
Some analysts observe that in the past few years Apple has always ordered its iBooks from whoever has been the owner of the certified production facility in Chungli, leading them to conclude that Apple may also place iBook orders with the new plant owner.
The analysts also note that Elitegroup has many strong local competitors that are able to take over the iBook orders.
One such contender is Compal Electronics Inc., which recently began contract production of PowerBook notebook models for Apple and has expressed an interest in winning the iBook business as well. Compal is a leading notebook-PC contract producer with plants in Taiwan and Kunshan, mainland China.
Another potential competitor is Quanta Computer Inc., which lost the PowerBook order to Compal, and Hon Hai Precision Ind. Co. Ltd., the world's largest maker of barebone PCs, connectors, and game consoles as well as the fourth-largest motherboard supplier.
One insider says that Apple negotiated with Elitegroup over the issue of moving iBook production to mainland China before the plant sale. He predicts that Elitegroup's manufacturing capability and costs in the mainland will be decisive in determining whether it can retain the iBook orders.
| Annual Capacity* | ||
| 2002 Revenue | ||
| 2002 EPS | ||
| 2003 Revenue Goal** | ||
| Mainland Plants | ||
| New Plant/Capacity Expansion | ||
| PC components made in-house | ||
| * Including Taiwanand mainland China ** Estimate by institutional investors Source: The companies | ||
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