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Taiwan computer makers aim for makeover

With the role of low-cost manufacturer increasingly being played by factories in mainland China, the island's manufacturers are scrambling to reinvent themselves.

TAIPEI, Taiwan--With the role of low-cost manufacturer increasingly being played by factories in mainland China, Taiwan's computer makers are scrambling to reinvent themselves.

Some companies aspire to focus on design, while others seek to establish themselves as a brand name. Still others see themselves as a coordinator of logistics for the top-tier computer makers, overseeing production and distribution.

Nearly all of Taiwan's major computer firms are looking to branch out into new areas amid what is seen as an inevitable shift of most manufacturing work to the mainland.

Longtime motherboard maker First International Computer is one of the companies that has been working to make such a transition.

Like most Taiwanese companies, FIC is not simply watching its business move to China; rather, it is following the business across the Taiwan Strait, having set up operations in Shenzhen and Guangzhou, two mainland manufacturing centers located near Hong Kong.

Roughly 80 percent of FIC's manufacturing is done in China, not counting the assembly of notebook computers, which Taiwanese companies are forbidden by law from doing in the mainland.

"The manufacturing service is gradually moving to China," FIC Chairman Ming Chien told CNET in an interview at the company's office in downtown Taipei. "In Taiwan, we need to emphasize engineering service and offering global logistics."

But FIC, like many other large motherboard makers, is also looking to move up the food chain.

"I think all of the motherboard makers in Taiwan will have to switch and do the whole systems," Chien said.

In addition to offering complete computers rather than just their primary circuit boards, FIC and its rivals are also looking to expand their business.

A walk through this week's Computex trade show reveals that many motherboard companies are moving into products that are similar to computers but require expertise not available on the mainland, gear such as handheld computers and portable Web-surfing tablets.

FIC introduced a Linux-based handheld with built-in Bluetooth chip for sharing data wirelessly, while fellow motherboard maker Micro-Star International also showed a Palm-like handheld at its booth. Another company, Epox, which has branched into making pagers, this year introduced a pager that can also receive e-mail and act as an electronic organizer.

Another popular direction for the motherboard makers is to offer Internet appliances, both portable Web-surfing tablets and the desktop variety. However, while such goods are plentiful at the show, sales are still relatively weak and the competition is intense with so many designs on the market.

Branching out
In other parts of the Taiwanese tech industry, companies are also branching into new areas to avoid seeing all of their production and business shift to mainland China. The manufacturers' optimism about their shifts may have roots in the Chinese saying, "What is lost in one corner will be recovered in a still better area."

"There is an obvious trend of Taiwanese firms to diversify their business in different tiers in order to offset (the) risk," said Cynthia Chyn, an analyst at the Institute for Information Industry, a nonprofit analyst firm loosely affiliated with the Taiwanese government.

Chyn points to connector maker Foxconn, which in recent years has moved into making communications parts. Similarly, Chyn says power-supply makers Liteon and Delta Electronics have tried to expand as production of that component has moved to the mainland.

Delta now assembles other gear, such as flat-panel displays, Chyn said, while Liteon is a leader in the area of light-emitting diodes and is evaluating investments in optical communications.

Taiwanese computer maker Acer is looking to shed its manufacturing business entirely. By around the end of the year, the company hopes to spin off its multibillion-dollar manufacturing operation and focus on selling its own brand of gear in Asia and beyond.

The move to China isn't all bad for local companies, as much of the production is still being done by Taiwanese companies that have built factories there. But the concern is what the shift will mean for the local economy, as well as the risk that U.S. and European companies could eventually bypass Taiwan entirely.

A slowing economy is adding to the challenge for many companies. Acer, for one, recently warned that its overall group sales would fall short of prior estimates, with a drop also in sales of its own branded goods.

FIC's Chien agreed that making money is tougher with the current slow economy, but said there is continuing demand from U.S., Japanese and European companies to outsource more of their manufacturing.

"The volume is still there," Chien said "Of course, the pricing is not good."

But adversity is nothing new for FIC. The company has faced challenges before, such as several years back when Intel boosted its efforts at making computer motherboards. While FIC saw its share of the PC motherboard business decline, the company branched into making notebook computers, in what turned out to be a very profitable move for the company.

Chien and others are confident that, despite the changes and the current economy, Taiwan will continue to prosper.

"In the face of economic slowness around the world, we can still see dynamism in Taiwan," said Chih-peng Huang, president of the China External Trade Development Council, a Taiwanese trade organization. "We are committed to research and development and innovation in our products...I am sure Taiwan will enjoy staggering growth in the future.