Illustrating the increasing domination of Asian producers in the global mobile PC market, a whopping 82.6 per cent of notebook computers in 2005 were manufactured by contract manufacturers mainly in the Greater Shanghai area, according to iSuppli Corp’s Global OEM Manufacturing Analysis (GOMA) service.
Worldwide mobile PC production in 2005 amounted to 61.9 million units, and will grow at a strong compound annual growth rate (CAGR) of 17.9 per cent to reach 141.4 million units in 2010, iSuppli predicts.
In 2005, 82.6 percent of this production, or 51.2 million units, was outsourced by PC OEMs to contract manufacturers. By 2010, the portion of outsourced PC production will rise to 92.5 per cent, or 130.8 million units.
“The vast majority of outsourced mobile PC production is conducted by Original Design Manufacturers (ODMs), which mainly are headquartered in Taiwan,” observed Jeffrey Wu, analyst, EMS and ODM services for iSuppli Corp. “The ODMs’ competitive cousins in the Electronics Manufacturing Services (EMS) business are nearly completely absent from the mobile PC market. Production of mobile PCs is heavily concentrated among the top-five ODMs, Quanta, Compal, Wistron, Asustek and Inventec, with these companies accounting for 67.9 percent of unit shipments in 2005.”
The table below and attached presents iSuppli’s ranking of the top-10 ODM PC makers for last year.
While most of these companies are based in Taiwan, their manufacturing operations are in China. More than 85 per cent of the world’s ODM mobile-PC manufacturing capacity is located in the Greater Shanghai area, iSuppli estimates.
Factors driving the increasing domination of the ODMs in mobile PCs include the standardization of notebook platforms, the maturation of the supply chain in Asia and the ever-rising focus on marketing and sales among PC OEMs.
Mobile-PC designs have become increasingly standardized, and now are composed of well-understood building blocks like the microprocessor, the core-logic chipset, the graphics controller, the memory and Microsoft Corp’s Windows operating system.
Because of this standardization, a larger number of ODMs can fully assume the design and manufacturing of mobile PCs while simultaneously keeping pace with the latest technological developments.
Meanwhile, the mobile PC supply chain in Greater Shanghai has matured to an advanced state of development and maturity. Component suppliers and logistics providers in the region have formed a competitive supply chain specifically tailored to serve ODMs. This supply chain, along with the comparatively lower labour rates in China, is encouraging more OEMs to take advantage of the cost savings that can be achieved by ODMs that already have established a presence in the region.
Finally, outsourcing frees up more resources for PC OEMs so that they can focus on their sales strategies, marketing activities and after-sales service to acquire and retain customers.
With their domination of the mobile PC market, Taiwan’s ODMs occupy an enviable position in the global contract- manufacturing business. PCs continue to be the biggest driver for electronics manufacturing, with their widespread usage and ubiquitous penetration across the consumer, small/home office and enterprise segments. Furthermore, mobile sales are growing significantly faster than desktop, making notebooks the most attractive segment of the PC market.
However, not everything is so rosy in mobile PCs; gross margins for mobile-PC manufacturing are in the 5 to 6 per cent range. Furthermore, competition among the ODMs in this segment is intense. These factors, plus a lack of R&D resources in the business, may dissuade the EMS giants from entering the mobile-PC market.
For the PC OEMs and component suppliers, the increasing dominance of the ODMs in the notebook market has significant implications.
OEMs can take advantage of the intense competition among ODMs to play them off against each other, and obtain the best terms in contract negotiations. The OEMs can employ various ODMs to reduce time to market and to fill gaps in their product lines for product or geographic niches.
As for component suppliers, they should treat ODMs as OEMs, especially in the mobile-PC industry. With the scale and continuous growth momentum, ODMs are able to exercise extensive bargaining power over the component supply chain and enjoy a high level of component selection ownership. Therefore, component suppliers need to treat ODMs as if they were OEMs in order to build robust business relations and to ensure design wins.
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