Tuesday, 14 June 2011 01:52

A small Taiwanese company named Asustek is leading the margin compression that will change the face of portable computing.

A small Taiwanese company named Asustek is leading the margin compression that will change the face of portable computing. For those of you who are unfamiliar with Asus, they are the ones that created the "netbook" form factor with the Eee PC netbook about 4 years ago. The result? They turned the world of portable computers on its head, driving margins down, sales up, and many companies out of the category. Asus is responsible for the release of the iPad, for Apple refused to join the margin race to the bottom with Asus (a race they most assuredly would have lost, like many other US manufacturers) and instead came up with the idea of the iPad (a stripped down tablet with a focus of enhancing the usability of a select few features), that would allow them to maintain relatively high margins.

As I have warned several times in the past, the prominent south east Asian companies are category leaders in low margin, high volume production. With the advent of Android to outsource the onerous, IP intensive task of OS, ecosystem and platform development, these companies are in their element and will do the same thing to the smartphone handset (see HTC) and tablet (see Samsung and Asus) industries that they did to the notebook industry.

Reference the penetration of the Samsung Galaxy 10.1, which is not even for sale nationally yet, already finding large scale adoption. Of course it still faces very stiff competition from the iPad, which we presume will eventually compress margin at both companies:

Delta Offers Free iPad Access At JFK Airport

If you’re taking a Delta flight from New York’s JFK airport, you’ll probably notice that iPads are now installed at Delta seating areas, offering free Internet access and allowing waiting passengers to order food and drink using the tablet. The iPads are free to use and you aren’t even required to order any food or drink to enjoy it. OTG Management, the company that provides the iPads, states that they won’t even impose time limits on them, so if your flight is delayed, at least you’ve got a good way to kill time. No mention if Angry Birds is pre-installed for your or not, though.

American Airlines to provide Samsung Galaxy Tab 10.1 as in-flight entertainment

While we have most airlines opting to use the iPad as in-flight entertainment, we have one airline that has chosen not to succumb to the trend, by offering a Samsung Galaxy Tab 10.1 instead. American Airlines has just announced a deal with Samsung that will place its 10.1″ tablet into the hands of passengers who are flying Premium Class on the airline.

 

The tablets will be customized for the airline’s in-flight entertainment needs, including the addition of expanded memory because the tablet won’t be streaming anything from the cloud – despite you flying above the clouds in the plane.

Asustek Transformer Said to Top All Non-iPad Tablet Shipments in June

Taipei, June 10, 2011 (CENS)--Asustek Computer Inc. Chief Executive Officer (CEO) Jerry Shen said yesterday that the company will ship 300,000 systems of Asus EeePad Transformer tablet PC in June alone, likely topping all non-iPad shipments from the company`s competitors. Citing statistics provided by PC retailers, the company`s chairman, Johnny Shih, said all suppliers of non-iPad tablet PC have cut down shipment goals at a time when demands for Asus EeePad Transformer remain strong. Asustek launched the unique tablet PC, which doubles as a netbook when clipping into an optional keypad, early this year.
Shen pointed out that the company shipped a total of around 400,000 Transformers in April and May, far exceeding the 300,000 systems set for the second quarter. Based on the prosperous shipments, the company will not rule out the possibility of hiking shipment goal for this year in August, according to Shen.

Shen pointed out that tablet PC will bring in revenue of NT$2.5-3 billion (US$86.7-103 million at US$1:NT$29), accounting for 10% of the company`s total revenue for June.

The company set its consolidated revenue goal for the second quarter at NT$73.9-77.5 billion (US$2.5-2.6 billion), staying flat to increasing 5% from the same quarter of last year.
Shen also estimated European market and mainland China market would turn strong in the third quarter although demands there have been weak in the second quarter.
When asked if Asustek`s sales would be affected by Acer`s clearance sales campaign aimed at depleting inventories in European retailers, Shih asserted that his firm`s sales would not be affected because Asustek will introduce new products to counter the campaign.
The company is said to introduce second generation of the tablet in the fourth quarter to capitalize on the Christmas shopping season. Shih said next-generation Transformer will come in a slimmer design.

This "competition" between Acer and Asus will affect more than just S.E. Asian manufacturers for, with the assistance of Google's Android, the technological bar will be increased dramatically across the board while price expectations will drop enormously. Reference Google’s Excellent Execution On The Android Platform Goads S.E. Asian Manufacturers Into Low Margin Innovation War! and witness the hardware form factor revolutions that come into place as these companies start to focus on their core competencies...

Here goes 3D screens, the thinnest capacitive stylus tech in the industry (that innovation thing) and full telephony, both through the tablet itself or through the telephony-only handset accessory (there goes that innovation thing again).

I have used Asus products for about 6 years or so now. They make good, solid products and you can buy them for a few hundred dollars (as in under $400). There is no compromise at those price points and even price points up to twice as much. The partnership with Google's Android is a killer combination as it allows each company to focus on its core comepetencies.  A good example is the Transformer, which by itself is a much better performing and practical product than the iPad 2 see:

Despite the fact his launched last month, Asus is already launching two other tablets and a smartphone before the 4th quarter end, in time for the holidays. In addition, Android is slated for two major software upgrades in this same time period (HC 3.1 and IceCream Sandwich, which melds tablet and smartphone OS UIs). This is a ridiculously rapid pace and is impossible for Apple to keep up with as it struggles to launch the iPhone 4G (3 months late) and prep the iPad 3. In addition, Samsung, whose Tab 10.1 tablet is the thinnest and lightest in the industry (as well as their smartphone boasting nearly the same claim), has already announced updates to both the tablet and the phone for the 2nd quarter of 2012 that will more than double performance, most likely due to their proprietary Exygins? chip which is less power hungry yet faster than anything currently on the market. No, they will not be selling this to Apple (they make the chips for Apple's iPad and iPhones).

Glasses free, HD 3D phones are now everywhere HT, LG and even Sony who happens to have a dual 8MP 3D camera mechanism:

Kyocera Echo morphing screen form factor

This is why I penned "- I Absolutely Dare Anyone To Read This And Still Not Consider The Probability (Not Possibility) Of Apple Suffering From Margin Compression". Of course, the reality of Apple facing margin compression or credible competition seems to be beyond the ken of Wall Street's sell side analyst community. Reference JP Morgan Follows Goldman’s Steps In Issuing Utter & Complete Bullsh1t In The Guise Of Equity Research: I Call Them On It!

JPMorgan Chase Report

JPMorgan Chase: A report issued by JPMorgan Chase warned of an oversupply of tablet computers.

Technology companies who hoped to outdo the Apple iPad by offering alternate slate-like products are not seeing the demand they hoped for from consumers, according to an analyst’s report issued by JPMorgan Chase.

The report, which was issued on Wednesday, said companies building products to compete with the iPad have slowed production by as much as 10 percent since this time last March.

Hey, is that statement accurate? Let’s reference a Google search on the topic

You see, Asus severely underestimated the demand for a truly functional, keyboard docking Honeycomb tablet with a big bright screen priced 20% below the cheapest competition. As to how they came to that conclusion is anybody’s guess, but they allegedly produced 200k for the month of May (all of which sold out in less than a day or so), and are slated for 300k for the month of June. Look below to see if that production increase is anywhere near enough to sate demand for this Honeycomb tablet. Now, back to the ever prescient analysis of JP Morgan as widely publicized by the NY Times…

At that time, the report said, competing tablet companies created 81 million tablets; this year the number has fallen to 73 million.

The report named the list of iPad rivals that have failed to gain traction,including Asustek’s Eee Pad Transformer, Motorola’s Xoom, Research In Motion’s PlayBook, and Samsung’s Galaxy Tab. Although the Eee Pad sold out in stores when it debuted, it is now easily available and in some cases overstocked.

An eBay search for the “overstocked”, “easily available” Asus Transformer that BoomBustBloghas crowed about so often lately (and on which this post is currently being created) yields (click to enlarge):

As you can see, the Asus is in such high demand that sellers can actually dump used devices OVER MSRP and for more than they actually paid for them! That’s right! People want them so bad that they will pay more than retail for a used one!. Let’s assume you’re a sell side analyst working for JP Morgan and you don’t believe in that esoteric supply and demand, economic theory crap. Let’s just see how realistic the analyst quoted above is in his assertion that the Asus Transformer is overstocked. Looking at the most prolific private electronics retailer in NYC – who just happens to be a 5 minute walk from JP Morgan’s global headquarters in the Wall Street area (just in case any JPM analysts actually want to get up off of their asses, do their “stated” jobs for a change, and get some facts straight. Yeah, I know…. I just make friends in investment banks everywhere… Wondering if my site is still banned from bank intranets)…

Of course, with the advent of competitive devices at competitive prices - we have compentition which leads to more efficient price discovery, i.e. lower margins - Look & Listen Closely As The Solitary Margin Compression Theory Slowly Bears Fruit: Apple to Drop Flagship iPad Prices?

From the BoomBustblog archives:

  • Engadget's Darren Murph: It's quick, nimble, and easy to hold, and it's both thinner and lighter than the heralded iPad 2. There's no question that we prefer the handling of the Tab 10.1 over Apple's alternative, and with the improvements coming with Android 3.1 (and in time, Ice Cream Sandwich), it's going to be mighty hard to overlook this device come June 8th. The 16GB WiFi model will hit for $499 -- exactly in line with the iPad... There's just no other way to say it: the iPad 2 finally has a real competitor. If Samsung could somehow undercut Apple by even $25 here, the choice would be obvious, but it's going to have a whale of a time convincing the masses that a Samsung device is superior to one Designed in California when prices are equal. That said, we'd still recommend the Tab 10.1 over the iPad 2 for heavy Gmail users and all-around fans of Android."

 

Click for video

IT Pro Portal

The Asus Eee Pad Transformer has been a very popular tablet - even topping Amazon's best selling tablet list - for two main reasons. Firstly, it provides great value for money; it is both cheaper than the iPad 2 and has a bigger screen with a better display resolution.

Then there's the fact that it has a rather affordable accessory that can convert it into a fully fledged netbook with a 16 hour battery life altogether. The device, which runs on Android 3.0 Honeycomb, is powered by Nvidia's Tegra 2 chip and comes with 1GB RAM as well as 16GB onboard storage. Apart from Wi-Fi, it has USB, HDMI and Bluetooth connectivity.
Read more: http://www.itproportal.com/2011/05/09/asus-cannot-produce-enough-ipad-2-killer-tablets/#ixzz1MQWRncSz

 

Not only is competition expected to put significant pressure on prospective demand, it is driving costs up as well. The following is excerpted from the subscriber document File Icon Apple – Competition and Cost Structure.

While Apple’s battle with Samsung has made the most headlines in the pop media, it’s there competition with LG Electronics that is really hurting them from a line item perspective. As practically every new Honeycomb tablet (except for the first, the Mororala Xoom) features a superior screen at a comparable (or in the case of the Asus Transformer, much lower price), the cost of said components are not only the largest line item cost for Apple, but the largest expense increase over generation as well. Apple will be very hard pressed to find a vendor who can supply in the volume and quality that LG Display can (giving them ample pricing power), and if it were to shop around it will probably have to solicit… Samsung, it’s largest competitor in the tablet/smartphone space, via Android.

In the meantime, as an answer to all of those professional analysts and market researchers who failed to see what BoomBustBlog made quite clear early in 2010 (see the Mobile Computing Wars series in its entirety), Google’s Android Market Share Explodes As It Expands Its Reach To Cars, Toys, Home Automation, Music & Movies – All In The Cloud:

Amazingly enough, despite Apple’s stellar performance ad launch on Verzon’s network,, Google’s Android still managed to pull ahead significantly in market share.

Last modified on Wednesday, 27 July 2011 08:06