“Asus will continue to compete with Gigabyte United”

Tim Handley still does not have his business card with him, because there has
been a spate of corporate changes taking place in Gigabyte ever since it
announced it plans to enter into a JV with AsusTek Inc. But Handley has his job
cut out for him. He still views Asus as a competitor, which will make him go
that extra mile to ramp up sales for Gigabyte United

What were some of the prime reasons for Gigabyte to merge forces with
Asus?

For the past two years, Foxconn was trying to buy Gigabyte. The reason was
simple. Like most Taiwanese companies, Foxconn business model was to simply
manufacture motherboards in bulk to enjoy economies of scale. It did not have
any need to market its brand or create its brand identity.

Tim Handley Regional Marketing Manager-Pan Asia and Pan Africa Gigabyte United

But China has emerged as the mass producer for the world and this put Foxconn
in a fix. It did not have a channel or go-to-market strategy. Also, Foxconn had
OEM partnerships and did not sell to the end customer.

On the other hand, Gigabyte had a dedicated and loyal channel and a good
branding strategy. Plus 80 percent of Gigabyte's business came from the
channel to the end customers. Therefore, Foxconn had been making overtures to
take over Gigabyte as the best route to transform itself into a popular brand.
There was not much else that Foxconn could have done to upgrade itself into an
end-customer brand other than this.

So before Foxconn could take us over, Gigabyte decided to merge forces with
AsusTek Inc and consolidate its position. Plus, Asus was competing with Foxconn
on the OEM level. Therefore, this joining of forces has made Gigabyte stronger
as a company. Also, we can now make cheaper motherboards, without compromising
on the quality.

Is this a sign that Gigabyte will have more M&As?

Yes, M&As are bound to happen, as and when the market demands it. 

What is the nature of Gigabyte's holding in Gigabyte United?

Gigabyte has a 51 percent stake in the joint venture with Asustek. Gigabyte
United will have permanent and exclusive licensed use of the Gigabyte brand and
trademark for making and marketing desktop motherboards and graphics cards.

So what happens to the Asus brand?

Asus will still continue to function as a separate brand altogether. We will not
share our technology with Asus. And it will still be our competitor.

What exactly is Gigabyte United all about?

Gigabyte is the nucleus and has divisions acting as separate entities
concentrating on core business. By setting up of Gigabyte United, the parent
company has merely spun it off as a manufacturing arm of motherboards and
graphics cards, that's still its bread and butter. Gigabyte will also charge
for the licensed use of its brand name for five years from the first year
Gigabyte United begins to make a profit. Gigabyte United will pay 50 percent of
its operating profit to Gigabyte for three years with the percentage to decrease
to 33 percent for the following two years.

How will Gigabyte benefit with this turn of events?

This is an entirely win-win situation for us. For starters, we will now be able
to concentrate more on R&D. To give an example, we are developing an Intel
961 chipset based motherboard for Dual Core 2. Since it is a new motherboard,
there is a lot of debugging to do before we start producing it in bulk.

Also we will be the first company to come out with motherboard on the latest
technologies announced by Intel or AMD. This is because we have strengthened our
position with OEMs. Also, these very OEMs will come to either Asus or us, which
still works in Gigabyte's favor. Another benefit is that margins in the
motherboard business are very thin. By taking Asus into our fold, we can operate
on better margins while bringing down our production costs. This in turn will
make us a stronger player in the market. 

But would it not make more sense to simply assimilate Asus into the
Gigabyte brand?

No. Firstly, this is because Asus has a different and distinct brand identity.
Also, Gigabyte has technological agreements with vendors like AMD and Intel. For
instance, we are six weeks ahead for Dual Core motherboards. If we merge with
Asus then that relationship will be lost. 

Does this mean that you will be luring people from Asus for Gigabyte
United?

No. When Gigabyte starts a new business venture, it prefers to bring specialists
from outside rather than cannibalizing its own manpower. So we will recruit some
of the best people in the industry for Gigabyte United. 

What are your plans for Gigabyte United?

We are already working with Intel and AMD to launch their latest generation of
chipsets on our motherboards. Also we will concentrate on the higher end range
of motherboards. We want to boost the market perception of our brand and
products and educate them about some unknown facts of our products. For
instance, we are the only company to have Dolby digital audio certification
motherboards for AMD or that the capacitators in our motherboards do not leak,
even if they are over-clocked.

- VINITA BHATIA