Tag Archives: original equipment manufactures

OEM sector shakes off economic downturn, earn record profits

Despite the continuing global economic woes Taiwan’s original equipment manufacturers (OEMs) are emerging with their heads held high. While their 3 to 4 percent profit margin may seem rather unspectacular, these statistics hide a resurgence that is hard to ignore, according to the Central News Agency. In fact, through innovation, expansion and cost control, many Taiwan OEMs have actually earned record high profits in the wake of the 2009 financial crisis.

What is even more surprising is the fact that despite a fall in profit margins from 15 to 4 percent Taiwan’s notebook OEMs have rolled out record high earnings in the last three years.

Companies with record high after-tax profits in 2009 and exceptional earnings per share (EPS) include: Quanta Computer with profits of NT$22.3 billion (US$6.9 billion) and EPS of   NT$6.09 (US$0.19), Compal Electronics with profits of NT$19.2 billion (US$6 billion) and EPS of NT$4.91 (US$0.15) and Wistron Corporation with earnings of NT$9.135 billion (US$285 million).

Constant innovation is the key

Unlike their Chinese counterparts, Taiwan’s OEMs do not rely on low labor costs to make a profit. The main reason behind the continued survival and growth of the island’s notebook OEM manufacturers is their continual technological innovation and their ability to add value to their products.

Perhaps an industry with a 3 to 4 percent gross profit margin does not merit a discussion and maybe a sector that does not evolve is destined to stagnate. Indeed, in order to survive, every business must innovate. Some OEMs have made the transition to a brand name in their own right, for example ASUS and Acer. Although this transition is difficult to achieve, companies can create new value, according to the Central News Agency.  The key is “diversified developments” in a common direction – from desktop computers  to notebook computers,  and  extending to the 3C industry (computer, communication and consumer electronic parts), televisions, auto parts, medical equipment, and even furniture and furnishings.

In the future, not only 3C industries will be high-tech. Technology will be integrated into automobiles, furniture and even home furnishings, making these smart electronic products as well. Taiwan’s OEM industries have expanded from the 3C industry gradually to infiltrate every corner of the home, thus expanding their market. Furthermore, these companies will form alliances to create new business opportunities.

After twenty years, Taiwan’s OEM sector has accumulated ample experience in production technology and design capability. In the face of the booming Chinese market, Taiwanese businesses believe they have what it takes to compete.  The industry is aided by a new generation of creative design elites who have studied abroad, combined with the experience of the older generation of production management, making the partnership ready to handle the Chinese market. At this point, the growth of the Chinese economy provides Taiwan businesses with many mouth-watering opportunities.

Brand name versus OEM?

In the tussle between brand name and OEM, OEM leaders know where their commitment lies.  Speaking to the Central News Agency,  T.H. Tung, chairman of Pegatron, which spun off from ASUS in 2008 to focus on the OEM business, said that design expertise and the foundry will be at the core of the  business and will comprise  the true value of Pegatron.

Ray Chen, general manager of Compal Electronics, is also pragmatic when it comes to what is important and believes the 3 to 4 percent profit margin is a smoke-screen. “Do not underestimate us … ignore the gross margin figures, pay attention to the solid profit rates and profit numbers,” he stressed. Of course, everyone dreams about his brand, but not everyone can realize that dream … better to understand one’s own expertise, and take full advantage of it,” he said.