E COMPANY history and industry analysis

(1) ODM

ODM is the abbreviation of the original design manufacturer (ODM) which designs and manufactures a product which is specified and eventually branded and sold by another firm. ODMs allow the brand firm to produce (either as a supplement or solely) a product even without having to engage in the organization or running of a factory.

Due to the popularity of international trade and professional service age, ODMs play more and more important roles in the world. The traditional model between ODM and brand firm is usually like ODM produce goods for a foreign company which sees some advantage in the transaction (such as low labor inputs, transport links or proximity to markets). Another reason for the ODM is that some countries’

laws possibly prohibit direct ownership of assets by foreigners, allowing a local firm to produce for a brand company for either the domestic market or export.

Another famous name of this kind of model is named "outsourcing". In Taiwan, there is a lot of computer ODM such as Compal Electronics, which famous as

making notebook computers and monitors and operating as a mass producer for numerous brand companies. For Compel, they assisted brand firm by low labor costs, low-cost transport, and the near commodity nature of the physical inputs.

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(2) E COMPANY

E company was established in 1987, had just passed their 25^th birthday. In the first decade, E company was the first mother board OEM which design and

manufacture the mother board for almost all the famous computer company. Such as Dell, Lemel and Genuin. In 1996, E company developed their system fabricate

production line in American subsidiary. And then soon in 1999, E company officially extended their field to the system design, manufacture and marketing business. From now on, E comapny’s main focus had expanded to not only motherboards, but also desktop and notebook computers, graphic cards.

When E company tried to develop their own brand’s product, a lot of Taiwanese company like ASUS and ACER which were also the manufacture vender for the International computer brand before had already launched their own brand product to worldwide market successfully and tried to separate their OEM and brand department.

For example, 2008 ASUS tried to separate their OEM business from her own brand business, so she built another company to handle her OEM’s business which called Pegatron Corporation. Now, ASUS already put their order to another OEM instead of put all their order in Pegatron(table 1). In another hand, Pegatron also tried their best to develop their relationship with their other customer. And due to Pegatron was managed by ASUS, Pegatron has plentiful capital and resource to develop their

supply chain and knowledge. Now, Pegatron had become the biggest ODM in Taiwan and also the biggest competitor for E company to get the order from I company.

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Figure 5: 2007~2010 ASUS ODM partner and quantity comparison (excerpted from Global sources, 2009)

Compared to E company’s competitor like Pagatron and MSI, E company doesn’t have that much capital and resource to develop their supply chain. So the decision of whether they should take the issue to be outsourcing or not is really important for the E company’s I company team.

(3) Competitors

The market research firm iSuppli issued a report in 2006 which demonstrated that 82.6% of PC notebooks' components are made by Taiwanese ODMs.

2003, the biggest three computer ODMs are Quanta, Hon Hai and Compal. Later, Pagatron join in this competitive war. However, the manufacturer such like Wistron, Inventec is still very powerful. Below we listed some of famous Taiwanese ODM.

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Foxconn: Foxconn which is known as the group of Hon Hai specialized in computer, communications, consumer electronics, digital content and even the high-tech automobiles parts production. Foxconn is currently the world's largest electronic professional manufacturer with more than 120 million people and the world-class IT (Information technology) customers. Their ODM business scope is really wide, from the newest technology as tablet to the traditional and mature ODM business as motherboards. Foxconn is famous for their high quality motherboards and excellent Apple’s iphone series.

Quanta: In the beginning, Quanta is the largest ODM in the world for notebook.

Their famous product includes the ThinkPad and MacBook. Quanta's notebook

business also includes the world's leading IT brands such as HP, and SONY. 2007, the shipment of notebook computer first time over one hundred million units and the notebook market share is 38% become the first ODM in the world. Their famous product includes 80% of the IBM ThinkPad (later, Lenovo ThinkPad) and Apple’s MacBook Air.

Compal: 2009, Compal which always the second largest notebook computer contract manufactures first time shipped out more than Quanta. After 2009, Compal competed with Quanta to be the first notebook ODM in Taiwan. Compal's main business is LCD monitors and LCD TVs. The SONY Trinitron, Mitsubishi Zuanshi Long Today Eizo, Mitsubishi ultra-high-end LCD monitors all made by Compal,.

Compal has a really famous customer called DELL.

Pagatron: Pagatron was separated from ASUS. In early 2008, ASUS finally completed the separation of brand and ODM business, and the subsidiary is the Pagatron which is responsible for the ODM business for a variety of IT products, among the product notebook computers is the main products for their ODM business

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(also including 100% of the ASUS notebook). A lot of researchers thought this separation of ASUS is really a wise decision. In 2011, Pagatron got the order of the iPad 3 (now is The New iPad contract) due to their good reputation and the strategy of word of mouth. After the separation, Pagatron owns ASUS original OEM strength and solid foundation, so the shipment volume is increasing steadily nowadays. And also, Pagatron is the biggest competitive for E COMPANY in this case due to their experienced ODM history.

Listed three of Pegatron’s important factors as below:

1. Talented Employees

Pegatron employed highly talented in-house design teams that perform at a high level by internalizing and executing innovation ideas.

2. R & D capability

Fueled by the spirit of innovation and development, Pegatron work to maintain and cultivate a strong IP position and patent portfolio.

3. Manufacturing systems

Pegatron implement tight vertical integration and streamlined manufacturing operations to ensure customer satisfaction.

(4) Customer- I company:

I comapny, the world biggest processor manufacture company, was founded in founded in Mountain View, California by Gordon E. Moore, Rpbert Noyce, and Arthur Rock in 1968. 1991, launched "I company Inside" campaign. This successful strategy makes I company one of the most recognizable computer company in the world. It also help I company to earn brand loyalty and awareness of I company processors in computers. In 2009, I company using a good-better-best strategy

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(Celeron<Pentium<I Family) calling I Family (Core i3, i5, i7) to separate different customer segment.

Due to their amazing strategy and unique technology, for the last 40 years, there is no doubt that I company is the biggest and strongest CPU (central process unit) manufacture. Furthermore, most of people might think they will keep this record for the next ten years. But in 2011, Advanced Micro Devices (AMD) launched their Bulldozer serial and APU. This is the first time, I company understand they might lose their first place of the CPU market.

Another side, I company saw the potential in the all in one (AIO) market. 2010, Apple launch their first AIO computer; try to develop another new product to replace the traditional desk top. In 2011, the growth rate of the AIO was 17%, and due to the mature of the AIO product, the expectation of the AIO in 2012 is 31%. But, Apple didn’t take all the advantage of this special product. From 2010 to 2011, Apple lost their market share from 37.1%to 28.6%. In the other side, Lenovo increase their market share from 12.6% to 22.8%, and might replace Apple’s first place in 2012.

Not only Lenovo, but also almost all of the famous computer companies, such as HP and Dell had prepared to focus on the AIO market in 2012.

For Intel, they saw the potential of the AIO market and a turning point to develop their system level product. But the critical problem is they don’t have any experience about the system level. So, if they want to extend their product category, they need to find a partner to help them design their system product. And which product they need to focus on? Should they focus on the competitive AIO market? Or the decayed market desk top?

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