Despite the seasonal slowdown in the PC sector for 2Q07, the CPU price cuts by Intel and AMD in April helped push up MB shipments above expectations in May. However, after May, the shipment figures began to fall once again. In addition to the continuing effects from the weak seasonality, the decline was also attributed to the following factors:

Intel's newest G35 Bearlake chipset, which performs even better than its G33 predecessor, is scheduled to be unveiled in 3Q07. Therefore, as vendors try to clear out the older inventory to make way for the newer products, it has weakened the sales promotion of Intel's latest platform in 2Q07. MB shipments for the second quarter are thus estimated to reach 37.5M, a YoY increase of 15%, but a MoM decline of 6%. The drop reflects the seasonal slowdown of the industry's usual cyclical nature.

As consumers still learn to fully embrace the various new digital household applications, market fluctuations of mature regions such as Europe, the US and Japan has remained subtle. To maintain a competitive pricing level and a sufficient gross margin, each player has tried to gain an edge over the other by a larger economy of scale, better manufacturing flexibility and operation efficiency. 

With everyone pursuing the same methods, the ranking of the MB manufacturers, (currently Asus → Elitegroup →MCI →Gigabyte) have remained relatively the same for quite some time now. Even so, they continue to devise new strategies in further expanding their business. Examples include the merger between Elitegroup and Uniwill, the failed linkup between Asus and Gigabyte, and the recent announcement by Asus in splitting up its branded and OEM business. These examples repeatedly show why manufacturers tread more warily in mature markets, as competition is more intense in new emerging industries. In our next section, the article will explain how the restructuring of Asus may affect the MB industry.

ASUS recently announced it will officially spin-off its OBM and OEM operations into separate entities. The OBM business will continue to employ the ASUS brand name, while two separate units--Pegatron and Unihan, will be in charge of the PC OEM/ODM portion. The main difference between the two is that Unihan will primarily handle the casing and non PC OEM business.

For many years, ASUS has been considering the separation of its branding and OEM business. The rising NB market share of ASUS has prompted its OEM clients to counteract its impact by threatening to cut orders. Amid the growing pressure, ASUS finally made the decision to split into three separate entities beginning from Jan08.

Roughly 37% of worldwide MB shipments are currently supplied by ASUS. In the wake of an ASUS break up, what kind of changes will it bring to the MB industry?Generally speaking, the gross profit margins in the branded business are usually higher than the OEM segment. Therefore, the higher the OBM ratio, the better it can compensate the losses incurred from the intense OEM competition. Contract manufacturers can take this advantage in securing additional orders at a better cost level. If Pegatron takes over the entire MB business after the ASUS split up, Pegatron will need to carefully choose its OEM orders, as earning a sufficient profit becomes a key priority. Such a transition will help underpin the current MB contract manufacturing cost levels.

However, in the long term, if the OBM business of ASUS teams up with a competitive OEM partner, it will bring forth an even more competitive pricing environment. According to Figure-1, ASUS owns the highest OEM shipment figures, compared to other Tier 1 makers. Therefore, in terms of the price negotiations for relevant components, its overall manufacturing efficiency has already reached a huge economy of scale. It will not be easy for other vendors to take orders away from ASUS.

Finally, once the split up is completed, Pegatron can more actively engage in the contract manufacturing of relevant system products, such as MBs, integrated casing, DRAM modules, fans, and graphic cards. This will elevate its status from an MB OEM to a contract manufacturer of a barebone, or even a full system, where clients are offered one stop shop service. If this occurs, it will pose a serious challenge to current MB OEM players.