Eee PC maker Asus goes gadget

It made a splash with the Eee PC. Now Asus, once known chiefly as a components maker, is looking to make the leap to consumer gadget maker.

One of the largest manufacturers of motherboards for two decades, albeit it a largely unsung one, the Taiwanese company finds itself smack in the middle of a transition from components maker to serious contender in PCs and accessories. Asus (pronounced "ah-soos") is attempting to establish itself as a brand name worldwide while making new forays into software and design.

In addition to creating a new line of consumer products like TVs, VoIP phones, e-readers, and streaming Web video gadgets, the company's leadership has its sights squarely set on being the third-largest notebook manufacturer in the world by 2012, while remaining the world's largest supplier of motherboards. While it sounds somewhat ambitious for a company known more for nuts and bolts, there's precedent: Fellow Taiwanese company Acer was in a very similar position a few years back and was able to transition from microchip maker to one of the largest laptop producers in the world.

Could Asus could be another Acer in the making?

Repeating Acer's success is, no doubt, difficult. But the two companies have a lot in common: Both started as components makers in Taiwan, and made the leap into making PCs and smartphones (Acer acquiring E-Ten, Asus partnering with Garmin). Asus' very existence was also made possible by its rival--it was founded by former Acer engineers.

In terms of market share, Asus is about where Acer was in 2004. Back then, Acer had a tiny, 3.6 percent share of the worldwide PC market, according to data from IDC. Today, Asus is in a remarkably similar place, with just 3.63 percent share. Meanwhile, the surging Acer has tripled its hold on PC buyers from where it was five years ago to more than 10 percent, right behind perennial leader Hewlett-Packard, and Dell.

Acer, of course, is one of the PC industry's most recent success stories, quietly blossoming from computer parts maker to established player in the PC world. It put the rest of the industry on notice when it scooped up Gateway in a $710 million deal, which included the E-Machines brand, and later acquired Packard Bell. It's a collection of lower-tier brands, but one that's been able to sell a lot of machines.

Asus, in building its Eee family of computers and gadgets and Asus-branded laptops, is relying on its team of Chairman Jonney Shih and CEO Jerry Shen to transform the perception of the company into a recognizable brand. Shih, who came over from Acer (along with Asus' original founders in 1989) is the ideas guy, and Shen puts them into action. It was Shih's idea for the Eee PC and the upcoming Eee Keyboard, and Shen is responsible for making sure the company's vast design and engineering teams make it happen.

But while Asus has some things going for it at that same point in their history that Acer did not--a recognizable product in the Eee PC--it's also facing very different challenges.

Acer was able to ride the huge growth in notebook PCs in the middle part of this decade. Eventually, it was able to buy its way into brand recognition in the U.S. with Gateway and in Europe with Packard Bell. Acer also timed the Netbook craze perfectly with its Aspire One, and was one of the first Netbook makers to strike deals with mobile carriers to offer 3G service on subsidized Netbooks.

Netbooks now make up one fifth of the PC market and are still chugging along--unit sales are expected to double from 16 million last year to 33 million by the end of 2009--but there's less room for dominating the market now because there are so many brands in the space, including much more recognizable names. Asus, for its part, is not intimidated. "We're used to it," Shih said recently in an interview. "Starting from the motherboard industry, competition is very normal."

Instead, it continues to churn out new versions of its Eee PC Netbook, with larger screens, better design touches, and slightly different form factors, like the convertible touch-screen version that debuted at CES this year.

More focus on aesthetics
But what Asus really has going for it are the leeway to be creative and the ability to come up with genuinely interesting ideas. Apple, they are not, but the company culture is now focused on making better-looking products.

"We're moving from our original culture of fundamentals and results, and we're now focused on innovation and aesthetics," said Shih.

It showed that with the Eee PC and graphics cards that are designed to resemble a Formula One race car. And now it's thinking beyond the personal computer with plans for a line of e-readers, televisions, and a streaming video device. Sound familiar? Acer also ventured outside of laptops when it bought smartphone maker E-Ten last year, in an admittedly less ambitious plan to diversify.

The Eee Keyboard also shows something which Taiwanese component companies aren't normally known for--ingenuity. The Eee Keyboard looks like a standard desktop keyboard but it has a computer inside, as well as a small 5-inch touch screen where the number pad should be. Using a wireless high-definition signal, it allows anything on the computer, like a Web page, or a video site like Hulu or YouTube to be viewed on a larger TV or monitor via a small adapter. You can also multitask while watching video and check Twitter, Facebook, or e-mail in the smaller touch screen in the keyboard.

It's a computer masquerading as a home appliance, an area we'll see Asus operate in even more. Since the initial success of the Eee PC, Asus has introduced a number of Eee-branded products, including the Eee Monitor, the Eee Box, Eee VoIP phone, and soon the Eee Keyboard and even the Eee Reader.

"We had to grow and diversify. But we didn't want to do things that are too far apart. We have to do technology that is related: communications, video, audio," Shih said. "The whole world is changing because of the Internet. Everything digital is converged. We have to take our vision for the whole Eee family there."