CEO Forum - Q3/2003

6. Profit margins are getting smaller, and everything is becoming more and more integrated (LAN, Audio, SATA, Graphics, Wireless, etc…). Currently, it is hard to see that many feature differences between tier 1 and tier 2 motherboards. Is this year going to be one in which the biggest motherboard manufacturers get bigger and the smallest motherboard manufacturers get smaller?

CEO #1: …wasn't IBM the biggest computer company 20 years ago? We believe a company with creative mindset and innovation tradition can always find a way to differentiate products.

CEO #2: … the biggest get bigger and smallest get smaller. However I think it won't be an ever continuing trend. Somehow the "bigger or smaller" will end in a level where there is a balance among players in the market.

CEO #3: The bigger get bigger and smaller get smaller should be changed to the stronger get stronger and the weaker get weaker. Sometimes the biggest will not get bigger, but get smaller as they have a weakness. … You have to look at each individual company and be able to determine its main strength and how strong that strength is. If a company has lost its strength, it will fall regardless of size. … There are always ways to differentiate a product.

CEO #4: Most of 2nd tiers need to find a way out this year, since there is no room for them to play in terms of brand name, products line, economic scale and….etc.

CEO #5: That's why all the tier 2 motherboard makers are eager to diversify into other markets outside of motherboards. Smaller doesn't mean fewer profits, the point is what is the "right size" for getting the best profit.

CEO #6: Tier-1 will dominate the desktop; other survivors are the high-end players…

CEO #7: It's become a worldwide trend in every industry that manufacturers which have larger economical scale, stronger R&D capability, better yield and quality and so on will be bigger and stronger…

CEO #8: Most incorporating with brand image and greater manufacturing capacity, the situation you mentioned in your question quite fit my own observation in this industry. Smaller manufacturers should shoot for niche market to get their own profit.

This question ties in with question 5. As high priced products have been phased out, we have started to see a smaller spectrum of price. This has been increasingly prevalent for motherboards, where prices are being slashed and profit margins are getting thinner. If this is to continue, it will mean that the mainstream market will most likely see the strengthening of Tier 1 manufacturers, while other tier companies must find success in niche markets. SFF is a good example of the migration from true motherboard sales to something of a niche market.

In terms of motherboards, it is clear that Tier 2 and Tier 3 manufacturers must find their own key to success outside of motherboard sales or find innovative ways to continue to be profitable. All of the CEOs said they planned to diversify into other markets, but those with the greatest sense of urgency seemed to be those Tier 2 and Tier 3 manufacturers.