Product Portfolio Diversification
Question: In previous years, we saw many motherboard manufacturers diversify into non-traditional market spaces. Is your company’s current business strategy focusing on diversification or the core products?
- Focusing on the motherboard industry.
- Both. We don’t necessarily think it is one or the other. Sometimes it is about diversifying the core products into other channels or strengthening existing market share with a different approach.
- We are still focusing on our core business.
- We are still focusing on our core product. The reason we are still active in the industry is because we are specialized. This is our weapon--our advantage that others don't have. That is why we have seen some motherboard manufacturers quit, even when the market was still strong. We are going to keep enriching our products to get more market share from our competitors.
- 80% of our efforts on core products and 20% of our efforts on a diversified product line.
- Motherboard manufacturers can easy join the notebook/ITX and AIO markets.
- We're not currently expanding beyond our core business because we're still growing and expanding our product breadth and customer base in our primary market.
Portfolio diversification is one of the keys to growing product offerings and the bottom line. Years ago, several motherboard manufacturers got involved in LCDs, wireless devices, and SFFs. Some have blossomed in these areas, and others have completely retreated back to the core business, or worse, discovered that expanding the product portfolio was their downfall as they hemorrhaged operating revenue.
The motherboard industry in 2010 looks vastly different than it did in 2005; we have fewer players on the scene, all of which have wised up to a more dynamic market. Since the economic climate has stabilized, if companies are going to invest in other products, now would be the time to draw up plans. Of the tier-one vendors, we are getting a mixed bag of signals. These are the players that really have the least to lose and the most to gain from new products. Some are saying maintaining focus on the core business is still the primary goal. Another says it is tepidly testing the waters by setting aside a percentage of operating revenue specifically for diversification R&D. A third says it can have it both ways by using subsidiary names to sell new motherboard designs in untapped markets.
Asus and MSI are really the only two motherboard manufacturers who are actively trying to make headway into the notebook sector. Both are trying to figure out how to better-engage customers at Fry’s and Best Buy. This is a challenge everyone is facing, and it isn’t about product quality or product design. It has more to do with brand recognition for a product not typically associated with their name. Even AMD has had trouble trying to connect with customers, and that is one reason behind the conception of the company's Vision campaign. Looking at the numbers, Asus and MSI have their work cut out for them if they want to touch the shipment numbers on the order of Acer. Their attempt to diversify is ultimately dependent on how many units they can keep shipping. This will depend on good notebook designs, excellent customer service, and good communication.
Tier-two vendors are largely hunkering down and focusing on their motherboard business. This really isn't a surprise. These companies have the most to gain and the most to lose. In this economy, its hard to justify doubling down at the poker table. Considering we won't see a full market recovery at least within the next two quarters, it's doubtful that we will see any of the tier-two vendors do anything beyond motherboards at this point. In another year or two (perhaps in 2012) things may change.
Obviously, diversification is s double-edged sword. On the one hand, a company cannot ignore opportunities for new revenue streams. On the other hand, they cannot afford to waste resources on risky endeavors. Right now seems to be a good time to lean toward caution, so an 80/20 split on focus isn’t bad if companies are looking to their long-term opportunities. The tier-two companies in this economy are best off with near to no diversification attempt, at least on the investment capital side. The lessons of Abit, AOpen, Albatron, Chaintech, DFI, Epox, Shuttle, Soltek, and Soyo should serve as a reminder of what can go wrong.
It is interesting to point out our private talks seem to indicate that diversification is going to impact different regions in different ways. For emerging markets, there will be a heavier emphasis on competitively pricing. For developed markets, such as Europe and the US, we are looking at a move toward richer feature sets.
