ASUS Enterprise Road to Nowhere – Whither Taiwan IT Industry?

ASUS HQ in Beitou, suburb of Taipei, Taiwan.

Taiwan IT industry, for a long time the leading among all Asian nations in terms of hardware manufacturing, has had its ups and downs over the decades. Does anyone still remember FIC (First International Computer), once the world’s leading mainboard maker? Or Elitegroup as the close second, while today’s leaders, Gigabyte, ASUS and MSI were far behind? Not many do…

The gigantic Formosa Plastics consortium, which owned FIC, continued down the road with VIA Technologies and HTC, showing their love for three lettered acronyms. While these two still survive, the twisted sense of marketing and PR in these companies – one of the stones around their feet that is preventing them from truly going forward – is still inherited from FIC, or more precisely their parent group.

The topic of this story is not FIC, but the company that took over from them as the board level products leader – (Peg)Asus. Yes, that was the original intended name, and it explains a lot the naming convention for the latter split of Pegatron and its OEM contracts. However, that vicious Balkan-style top exec battle between Johnny Shih and Tung Tsu Hsien that split Asus in half few years ago is not the subject of this story either.

Rather, it is the company direction and the impact on its future – can Asus truly become a high end brand, creating high margin branded product lines and fully escaping the low-margin, high volume play that plagues almost all players in the Greater China?

After all, Lenovo escaped that plague early by a bold shortcut move of buying IBM PC division and its bunch of experienced Westerners to run the show. That jumpstarted them from a China Academy of Science start-up to World No.1 in mere 15 years, mind you – no one dares refer to them as a small China shop anymore. Gigabyte is doing the same on a smaller scale in its Taipei HQ by having a multinational management team across its many product groups, with good results to show – including overtaking Asus in the high end mainboard business. Those numerous global faces in the management portrait the company as global, too – Asus sorely lacks that in its HQ.

In the meantime, Asus lost many valuable people over the years – like those who created the Asus ROG (Republic of Gamers) group for instance. Then, some internal politicking and sour grapes later, few years ago, folded the workstation division (with its excellent mainboard masterpieces like Z7S-WS, the only ever full TDP dual Xeon within normal ATX format) into the more or less mediocre server division. Wrong move – workstations, with their top bin, high margin component structure, are more akin to top end enthusiast PCs, than run-of-the-mill blade and rack servers, whose increasingly cost-oriented focus and lower priced CPU SKUs cut the margins substantially over time.

Of course, server group services and maintenance income should more than make up for that, isn’t it? Well, not to be – I remember personally bringing in the Asus team to participate in a multimillion HPC bid where their hardware could have won the game. They refused participation right away as they have no way to hire ONE person to handle 24-hour support necessary in every such bid. No wonder that, up to now, this gigantic company never ever submitted its own direct bid in any major server deal… shame or a pattern of behaviour?

Or some really questionable practices, like a RAS feature that allows your server farm to be controlled remotely by a ZenWatch… an inherently insecure, easily hackable device? No matter what so called security software you were to put on it, such an approach would disqualify the whole solution in any serious bid.

Hiring retrenched top execs of big US server multinationals seems to have been tried by Asus, too – but even then, what’s the use of friendly personal relationships with the top guys if the new person in charge has his hands tied in terms of budget and approach? How to fight a major leader like Lenovo, or generously funded upcoming China enterprise behemoth such as Inspur or Huawei or, closer to home, a lean and mean, well optimised machine of Gigabyte, which also has strong high end aspirations and the means to do it?

At the end, it all boils down to people – both the top end exec thoughts and the masses within the company that make things happen. If the latter are perceivably overworked, underpaid and burdened with a rigid work environment like seen in old style Chinese businesses, they will either not do their best, or leave. A quiz question: Who is paid better in absolute US$ terms plus perks – senior engineers at Asus in Taipei, or those in Huawei in Shenzhen? And, who works longer hours? No rewards for the (obvious) answers.

Same applies to manufacturing – yes, mainland China has moved up leaps and bounds in the manufacturing quality, but keeping some of the best stuff still truly Made In Taiwan helps keep customer confidence after all – that is the lesson that Gigabyte high end PC mainboard group has taught the Asus ROG, which rushed too early to have its boards made in the mainland, without the adequate non-stop quality control required there. We won’t even start the discussion of moving production from Mainland to Vietnam and similar, cheaper locations.

In the end… as I write this story from a high floor place in Pearl River Delta, the world’s largest megalopolis between Hong Kong and Guangzhou, while the Sun Yat Sen University Supercomputer Center, with its Tianhe-2, World’s No. 1 supercomputer, stares at me on the horizon from my window. Among the tens of thousands of systems in that place, there is no Asus… even though they have broad engineering know-how useful to the guys here. Too bad, never sold – others stepped in and filled the void. Further north, we have the first fully Chinese POWER8 and beyond CPUs, the CP1 and CP2, arriving – they could use the Taiwanese high end board design expertise for tuned performance, just like the Shenwei Alpha, military men with some of the world’s best CPUs made in China. Or, should we mention the Loongson MIPS, pushed aside on the high end but now likely resurrected thanks to the US Government Intel sales ban to big sites here?

Unlike Taiwan, which myopically focused its great IT industrial resources on low margin, high volume hardware to serve USA high margin vendors like Intel, AMD, NVIDIA, Qualcomm and Microsoft, but without its own key core technology, China did the opposite. It ensured the control of the core technology from top to bottom, taking all the best of breed technologies that USA itself destroyed due to its corporate shenanigans, and further improved them – Alpha, MIPS, now POWER and others… not bad!

The opportunity for the likes of Asus is to help the mainland build the right board and platform ecosystem to lead the global commercial assault with these excellent Chinese CPU cores. IBM, after all, is putting its best resources to help China with the indigenous high end POWER push, and the USA ban on Intel CPU sales to certain top accounts here can only help IBM and those other core platforms further.

The Taiwanese should jump right away to this opportunity, because the window is small and closing fast – the Chinese are fast learning the ropes at the ecosystem level too, as they have been making and increasingly designing the boards themselves using the experience gained from Taiwan factories here over the years.

So, rather than playing the usual “el cheapo China shop” game, the great China itself may be the last game for Asus, if it wants to be a true global brand player, and not just another cheap laptop / tablet / gadget maker. Others, like Gigabyte or Supermicro, may have faster reflexes and beat them to it, just like they already did in numerous other markets.