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Digitimes Research: Taiwan ODMs losing out as PC brand vendors turn to China supply chain for tablets
Jim Hsiao, DIGITIMES Research, Taipei [Monday 7 April 2014]

Among global top-7 PC brand vendors, only Apple (sixth place) still outsources its tablet orders mainly to Taiwan-based EMS providers and ODMs, while the rest - Lenovo, Hewlett-Packard (HP), Dell, Acer, Asustek Computer and Toshiba - have gradually shifted their entry-level tablet design and manufacturing to China-based makers. Their actions are expected to impact Taiwan-based makers' share in global tablet shipments in 2014.

Lenovo and HP were the earliest vendors that started cooperating with China-based ODMs. In 2013, Lenovo manufactured most of its tablets in house, but the China-based vendor's entry-level A1000 was outsourced to China-based smartphone ODM Shenzhen Huaqin Technology and accounted for almost one third of Lenovo's tablet shipments in the year.

However, because Lenovo's mid-range and high-end Yoga tablets have been enjoying strong demand in 2014, Digitimes Research expects production of these Yoga tablets to occupy the company's in-house capacities for entry-level tablets and force Lenovo to outsource more to China-based ODMs.

In early 2013, through its white-box application processor (AP) partner Rockchip, HP cooperated with China-based ODM BYD for its tablet devices. Although initially BYD had several issues such as a lack of system integration abilities, poor quality of components from upstream partners and unstable shipping schedules, most of the issues have already been improved with supprt from HP and Rockchip. The improvements also have attracted orders from Toshiba.

Although HP has not placed orders with Rockchip in 2014, its partnership with BYD has grown tighter with outsourcing of its new Nvidia and Marvell-based tablets.

On the other hand, starting in the second half of 2013, Intel has treated BYD as an important partner for the tablet market and has been helping it build up its manpower and technology strength. Intel is also offering price cuts for its processors and marketing subsidies to attract brand vendors to use solutions from China players and has successfully attracted Dell and HP to develop Android on x86 tablets.

Dell's new Android tablets for 2014 are expected to adopt Intel processors and be outsourced to BYD for production.

Seeing entry-level tablets' ASP dropping constantly, Taiwan-based brand vendors, which did not consider outsourcing their tablet production to China makers in 2013, started evaluating the option in early 2014 with Acer being the most aggressive. In January, Acer outsourced its 7-inch Iconia One 7 to China-based 3NOD for both the manufacturing and design. Although Acer only placed limited orders and is selling the device mainly in China, the move has shown the vendor the feasibility of outsourcing to China makers. Acer has now also outsourced its new mainstream 7-inch and 7.85-inch tablets to China makers.

After losing its chance to cooperate with Google for next-generation Nexus tablets, Asustek, to make up for losses in shipments to the mid-range and high-end market segments, reportedly may partner with China-based makers to strengthen its competitiveness in the entry-level market.

Samsung Electronics and Lenovo, which mainly manufacture their tablets in house, were expanding their presence in the tablet market during 2013, reducing Taiwan ODMs' combined share in total tablet shipments from over 80% in 2012 to only 66.3%.

Since the top-6 PC brand vendors' shipments account for 17.5% of the global tablet shipments (including the Nexus 7), Taiwan's shipment share may drop below 60% if the vendors give all their entry-level tablet orders to China makers.

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