Taiwan notebook computer makers in flux.

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Author: Uimonen, Terho

Taipei -- Financial pressures and a shortage of memory chips are troubling Taiwan's notebook manufacturers.

Taiwanese companies are expected to produce 2 million notebooks this year, an increase of 56 percent from last year's 1.3 million units, according to the Market Intelligence Center of the island's government-sponsored Institute for Information Industry.

But because the increase stems largely from large original equipment manufacturing (OEM) and original design manufacturing (ODM) orders, as opposed to own-brand sales, Taiwan's notebook makers are feeling severe financial pressure, especially those companies that lack economies of scale or sufficient financial backing, local analysts said.

"We're fortunate to have the financial resources that are needed to play in the major league," said Ernest Chen, vice president of international sales at First International Computer Inc.

FIC benefits from a close relationship with the Formosa Plastics Group, Taiwan's largest industry conglomerate. Formosa Plastics' strong financial backing reportedly was the deciding factor earlier this year when Japan's NEC Corp. chose FIE for a major notebook order.

The NEC order is reported to be for 10,000 notebooks per month. Based on the company's proprietary PC-9800 system, the models are to be sold exclusively in Japan, sources said. Company officials declined to comment on details.

Large U.S. vendors such as AT&T Global Information Solutions and Hewlett-Packard Co. recently have also placed major orders--AT&T with Mitac Inc. and HP with Twinhead International Corp., industry sources said.

The problem facing Taiwanese manufacturers is that they often must purchase all the components and manufacture and ship the units before they can expect to get paid.

"The name of the game is money, not technology. Firms that don't have the ability to raise sufficient revolving funds will be out of competition," said Ming Chien, chairman of FIC.

Meanwhile, a shortage of certain kinds of dynamic RAM chips used in notebooks is also causing problems for some Taiwanese manufacturers, including the Acer Group. Acer has a long list of OEM/ODM customers in addition to its own brandname products.

Simon Lin, president of Acer's Computer Products Business Unit, told the China Economic Daily News that the unexpected shortage of DRAMs could force the company to adjust its notebook output for the year to 380,000 units, down slightly from a forecast 400,000 units. Acer officials were not available for further comment.

Local analysts saw some irony in the fact that even Acer, which produces DRAMs in Taiwan in a joint venture with Texas Instruments Inc., is suffering from the DRAM shortage.

"The problem is that they are squeezed from both sides--retail prices are going down while DRAM prices could go up because of the shortage," said Arthur Tan, research manager at International Data Corp.'s Taiwan branch. "To stay competitive, they would probably still have to buy from the (South) Koreans, who still are the cheapest."

The DRAM shortage is not a problem for everybody. FIC's Chen said that his company, which only this year started volume production of notebooks, should have no problem in reaching its goal of a monthly output of 20,000 units by the end of the year.

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By BY TERHO UIMONEN, IDG NEWS SERVICE