Abit to sell all of its factories

TAIWANESE PC hardware manufacturer, Abit, is looking to sell its main production facilities in China and outsource all manufacturing in future, a spokesman said.

Abit has been through some troubled times over the past year. Several slaps on the wrist from stock market regulators - who some claimed overstepped their authority - and accusations of financial shenanigans have driven the company's share price down.

But while there's been plenty of smoke around Abit, there hasn't been any fire. There has been no legal action against the company, and new product launches seem to have continued on schedule. Still, local press reports suggest the plan to sell production facilities is part of an effort to pay off various debts before the end of the year.

Abit, however, said this is simply another step in a long term plan. "In fact, we began to outsource our very low end production, like MicroATX, to ECS [Elitegroup Computer Systems] two or three years ago," said the representative.

"Now, we're moving low end ATX products to other manufacturers, once we're sure about their quality. ECS is one of our production partners, but we're also looking for other qualified EMS [Electronics Manufacturing Services]."

The consolidation of low-cost manufacturing power in the hands of a few giant companies, like Elitegroup and Asus, is making it harder for smaller players, like Abit, to compete. "We are targeting power users and gamers, and doing pretty good, but if you compare us to large motherboard manufacturers, we don't have the economies of scale. It's harder for a niche market player like Abit to hold our place in the market."

Currently, 80 per cent of Abit's manufacturing is handled by its affiliate, Rolly Technology in Suzhou, China. The spokesman said it was 'likely' that Rolly, which handles Abit's mainstream and high-end production, would be sold, leaving Abit with no manufacturing facilities of its own. When that happens, Abit will almost certainly outsource most production to Rolly's new owner for some time, to keep things running smoothly.

Rolly - perhaps more correctly referred to by its Chinese name, Luoli Computer Co., Ltd. - is controlled by Abit through a chain of holding companies. Abit said its total indirect holding in Luoli was about 60 per cent at the end of 2004, with a value of around US$40 million.

Abit is following a trail blazed by other companies that handle marketing, development and quality control, but do little or no real manufacturing - like Dell or Viewsonic, for example. "When you look at our competitive advantages, we are strongest in R&D, validation, flexible marketing, and we have strong sales channels," said Abit's spokesman.

In Taiwan, second and third tier motherboard manufacturers are being forced down this path by market reality. They're trying to become pure product development and marketing machines, because there's no way they can survive doing low-margin 'me too' manufacturing any more. Shuttle, for example, began outsourcing while under severe financial pressure several years ago. A staffer described the period as a 'near-death experience'. Forced to innovate or die, Shuttle has since bounced back to become a leader in the small form factor PC market. Abit too, hopes to emerge stronger from difficult times. µ

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