Intel/Foxconn alliance could cripple Asus
http://www.theinquirer.net/inquirer/...e-cripple-asus
Asus to get a motherboarding
By Sylvie Barak
Wed Jun 24 2009, 15:57
AN INTERESTING chess game seems to be taking place between Intel and motherboard makers, with speculation that Intel will be handing over the reins of its motherboard design and manufacturing to Foxconn, the first time Chipzilla will go with an ODM over an OEM for mobos.
By handing over the lion's share of the R&D for Intel's own boards to Foxconn and making the firm its sole ODM, Chipzilla is thought to be saving itself a truck load of R&D cash as well as a fair amount of headache. After all, Intel has never been particularly good at making motherboards, lacking in the engineering resources to do it properly. Foxconn has better knowledge of designing boards, so its boards would be theoretically better.
Intel currently has two teams that affect the desktop PC market: The chipset team which most motherboard makers deal with; and the CPU team which has, until now, sold its own brand mobos.
Some might ask why Intel even bothers to be in the motherboard business at all, but the answer makes plenty of sense. Being in the motherboard market allows Intel to do what it does best: control prices.
The price structure in the motherboard market follows a chain with Intel at the top, followed by Gigabyte and Asus, then ECS/Foxconn and Biostar. This means, if Intel drops its prices, all other MB makers are forced to follow suit lest they lose market share.
Making its own motherboards also allows Intel to drive what it sees as key technologies - Vpro for instance.
Vpro has only recently started to see much uptake, and this seems to be the result of Intel having pushed the technology to its big corporate accounts who have upped the pressure on MB makers for VPro boards. This cleverly resulted in Vpro going mainstream and gave Intel justification for charging more for a Vpro chipset.
So, no wonder Intel perseveres with the MB market. The mobo makers put in the hard R&D graft which ultimately leads to Intel selling more CPUs. But just take a look at the numbers: the own-brand MB market is about 70-80 million a year and Intel sells around 6 million. Gigabyte and Asus sell some 19 million each.
The difference between OEMs and own-brand MB businesses is that OEMs make three or four models for a small number of customers whereas MB makers, such as Gigabyte or Asus, might have 20 models. And it doesn't take a genius to figure out how much more R&D it takes to churn out 20 models versus three.
Another key difference is that MB makers have loyal, service-orientated sales channels whereas an OEM deals only with a few customers - say Intel, HP or Dell - who in turn have their own sales channels.
Foxconn, is really an OEM company at its core. Despite trying and failing for several years to enter the own-brand MB market, it can't seem to break away from OEM mentality.
Thus Foxconn is a safe design partner for Intel because it doesn't have its own retail brand to compete with Intel's. Intel on the other hand has a great brand and wields enormous power in regions like India where it bundles its CPU with its own motherboards.
But that's not all. News coming out of Taiwan indicates that Pegatron Technology (Asus' OEM) will no longer be an Intel OEM partner for motherboards, which will be a big blow to Asus if true. Sources in Taiwan say Pegatron's motherboard shipments for 2009 could even be affected by as much as 25-30 per cent compared to 2008.
Pegatron and Asus source their components jointly, giving them huge leverage with Intel on pricing. If Pegatron no longer makes boards for Intel, then the Asus group will have less bargaining power.
Asus and Pegatron have purportedly been a pain in Intel's side for a while now. Their size makes them resistant to Intel's control. By knocking Asus down a notch, Intel might have better luck persuading the firm to play by its rules (such as not breaking the P55 NDA and leaking pictures of the board online, for example.)
So not only can Intel offload its R&D costs to Foxconn, it can also cosy up to the firm by making it a VC (validation and certification) partner, which typically get chipsets earlier than the rest of the market. Intel currently has three VC partners - HP, Dell and Asus - so the adding Foxconn changes the balance of power in Intel's favour.
Intel hasn't commented on the truth of this speculation, but did tell Digitimes it would continue to design and develop motherboards and closely cooperate with industry players. This may well be true, but the fact is that the pawns are being shuffled around the (mother) board.
This could be a play by Intel to dominate the market volume-wise. Or it could be a pact with Foxconn to abandon finally the own-brand MB market and form a joint business so Intel's local branches can sell the MBs.
Asus will have to sweat it out a little while longer before it knows whether Chipzilla's move is check mate. µ
L'Inq
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