Asustek, Gigabyte team up to consolidate Motherboard business

Asustek Computer Inc. and Gigabyte Technology Co., Ltd. recently co-announced their plan to open an NT$8 billion (US$250 million at US$1:NT$32) joint venture to focus on own-brand motherboard marketing, a move considered to combat rising rival Hon Hai Precision Industry Co., Ltd.

According to terms of the deal, Asustek and Gigabyte will own a 49% stake and a 51% stake of the venture, respectively. Gigabyte will spin off its brand motherboard and graphic-card business unit to organize the venture and Asustek will put NT$4 billion (US$125 million) into it. The venture will kick off operation in January next year.

Although the two companies stressed that the alliance would help stabilize price of the market and boost their gross profit margins, industry watchers believed the cooperation was aimed at Hon Hai, a rapidly growing contract electronics manufacturer developing strong presences in various sectors including motherboard. Hon Hai has been in the industry for only four years.

Together, Asustek and Gigabyte will bag 70% of world market of clone boards and 50% of brand market. Their joint venture's products will go to market under "GIGABYTE" brand. Individually, Asustek is the world's No. 1 supplier of contact boards, closely followed by Hon Hai.

Hon Hai is estimated to ship approximately 60 million boards throughout this year, close to Asustek's goal for this year. Added with Gigabyte's contribution of projected 18 million boards, Asustek will likely ship over 80 million boards this year.

The joint venture is projected to have revenue of NT$20 billion (US$625 million) in initial stage. According to investment proportion, Asustek will take 30% of the venture's earnings.

Gigabyte will hold the venture's major management positions including chairmanship and presidency.

Asustek Chairman Jonney Shih pointed out that a cooperation like this one would help improve order of the industry and bring the two companies more strength in innovation. He added that although motherboard manufacturing was already a mature industry, innovation was still expectable through more alliances.

Industry watchers expected the cooperation would hamstring Gigabyte's earnings and revenue next year considering that brand motherboard operation represents around 70% and 60% of the company's earnings and revenue, respectively, last year.

source & copyright: CENS