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The Most Hated Company In the PC Industry

January 4, 2008



Who in the hell is Asustek, and why does Microsoft hate them more than any other company in the industry? Why does Apple, Dell and Palm Computing hate them?

And why does Intel love them?


Taiwan's Asustek -- better known as ASUS -- is one of the most interesting, innovative and fastest-growing companies in technology.

At its core, Asustek makes motherboards -- more than any other company. Asustek motherboards are the heart of Sony's PlayStation 2 consoles, Apple MacBooks, Alienware PCs, and some HP computers.


But that's not why they're hated. The source of ire is a tiny laptop called the ASUS Eee PC. This open, flexible, relatively powerful, and very small laptop is notable for one feature above all: Its price. The Eee PC can be had for as little as $299. (Go here to read the reviews -- they're all positive.)


Let's take a moment to ponder how cheap that is. This full-featured laptop costs $69 less than the 16 GB Apple iPod Touch. It's $100 less than an Amazon Kindle e-book reader. The most expensive configuration for the ASUS Eee PC on Amazon.com is $499.


Even though ASUS isn't a well-known consumer brand, and even though the company just started selling them in late 2007, the company expects to sell up to a half million units by March, and up to 5 million by 2009.


The reason Microsoft hates Asustek couldn't be more obvious. The Eee PC runs Linux (Xandros running KDE) and uses an appealing and innovative tabbed-based user interface developed by Asustek. The device also comes with OpenOffice, a Microsoft Office replacement, and Firefox. The entire system -- hardware, OS, office suite and applications -- costs $30 less than Amazon.com's discounted price for Microsoft Windows Vista Ultimate alone. The Asus Eee PC is demonstrating to the world that its success depends on aggressively *avoiding* any Microsoft product.


Apple and Dell hate Asustek because these companies have been planning for quite a while to introduce flash storage-based mini laptops. But by the time they get around to shipping, the ASUS Eee PC will have already gobbled up some of the market. Worse, the ASUS Eee PC is preemptively poisoning the well by applying enormous price pressure on these two companies.


In truth, Apple isn't all that concerned because they'll do what they do, and the masses will respond. But poor Dell. That company's flash-based mini-laptop will probably cost five times as much as the ASUS. It will be 10% better and 500% more expensive than the ASUS Eee PC. Good luck with that, Dell!


Palm, Inc. hates Asustek because the company has made a fool out of them. Palm announced in May its Foleo mini-laptop. The device was slightly bigger than the ASUS Eee PC, but less capable and twice the price. The Foleo focused on connecting to the Internet through Palm's own line of giant cell phones. While many think Palm "killed" the Foleo, they in fact only killed the idea of shipping with a Linux-based OS.


In his blog announcement, Palm's CEO vowed to come back with a Foleo-like device that runs the same proprietary OS that powers Palm's next-generation of cell phones. By the time Palm gets around to shipping something, the market will be saturated with millions of ASUS Eee PCs on the low end, and thousands of Apple and Dell units on the high end.


Meanwhile, Intel loves Asustek. The ASUS Eee PC is powered by -- you guessed it! -- an Intel processor, namely the 900 MHz Intel Celeron-M. More than that, Intel respects Asustek for its engineering prowess. Intel discovered this fact when the company was struggling in the 1990s to fix a range of design flaws in its own 486 motherboard prototypes. Asustek was able to fix it, and in fact already had a fully operational motherboard for the chipset before Intel did. Since then, the companies have been very close.


Now rumors are circulating that a new Intel Merom-based ASUS Eee PC that may ship as early as April will run so efficiently that it won't need a fan. The entire laptop will be solid state -- no moving parts. Intel loves that kind of thing.


There's no question about it -- Asustek is the most hated company in the industry. Microsoft, Apple, Dell and Palm hate Asustek because the company can give us something they can't: A super cheap, flexible, powerful mobile computer. At $299, why would anyone not buy one?




from a Forbes article:


Asustek, had become the world's largest maker of computer motherboards and one of the ten biggest laptop manufacturers. Once known for churning out cheap clones of name-brand laptops, Asustek began designing its own ten years ago and produced more than 4 million last year. "But we were still a second-class company," he says. "We were fighting fires, not thinking ahead."


Around that time two low-cost notebook models were making waves. Last November tech guru Nicholas Negroponte's One Laptop Per Child, or OLPC, project released its first batch of prototype laptops designed for children in the developing world. And Intel (nasdaq: INTC - news - people ) was getting ready to launch a competing laptop, the Classmate PC, for a similar market. So, Shih thought, why not make a small, inexpensive laptop for grown-ups?


In October Asustek's Eee PCs hit store shelves in Taiwan, and Shih may have his breakthrough. The 2-pound laptops starting at $340 sold out in 30 minutes. This month they arrived in the U.S., starting at $300, and in Europe. The day they went on sale Asustek's stock on the Taipei market rose 4.9%. Kirk Yang, who heads Asia technology hardware research for Citigroup in Hong Kong, predicts that the company will sell at least 3 million Eee PCs next year but could easily tally 6 million. By comparison, Apple (nasdaq: AAPL - news - people ) has sold 4.3 million laptops in the last four quarters. Analysts say the Eee PC will probably have the low-end market to itself for 18 months before the other big PC makers can jump in. And it will push prices down for laptops across the board, though Shih is reluctant to admit this.


Asustek, founded in 1989 by four former Acer employees, expects to reach $23 billion in revenue this year, up from $17.2 billion last year. Profits for the high-volume, low-margin business that's still dependent on making components should top $870 million, up from $591 million.


Before OLPC and Classmate, smaller meant more expensive--$2,000 for a 2-pounder with a good screen and a DVD player. If your budget is $500, such an appliance would weigh 5 pounds. The OLPC machine, though, will be priced at under $200; bulk sales to governments are expected to start by the end of the year. Classmate has been on the market for eight months and goes for $200 to $300. With bright colors, rounded corners and built-in carrying handles, the two models look like toys to the usual computer buyers, but they show that it is possible to produce a small, inexpensive laptop able to perform most of the functions that users need.


Shih, the 56-year-old chairman and chief executive, pulled staffers from his laptop, design and motherboard businesses and put President Jerry Shen (who will move up to chief executive when Shih stops handling day-to-day operations in January) in charge of the project last November. "There were so many crazy ideas," recalls Shen. "I'd be traveling somewhere in the middle of India on a business trip, and Jonney would call me and want to talk about an idea for an hour."


The crucial factor in making a cheapie laptop feasible is the decline in the cost of flash memory. The Eee PC packs in 4 gigabytes of flash memory, making it possible to dispense with a power-hogging, space-occupying hard drive. It also has 512 megabytes of faster dram memory (the kind that dies when the power is off). Shih decided that his machine would have to include Wi-Fi capability, a video camera, an easy Skype interface, speakers, a microphone and a high-resolution (if small) screen. And it had to be light--making it as much a souped-up BlackBerry as a slimmed-down PC.


The most expensive part of the Eee PC is the set of four chips that include the microprocessor, the chipset and the main memory. Shih approached AMD and Intel about making chipsets that would be inexpensive and use small doses of electricity, to keep the battery weight low. amd was already producing the OLPC chipset, and Intel had designed a cheap microprocessor for its Classmate.


Intel, though, was eager to jump into a project with a bigger market potential than just education. Sean Maloney, who is Intel's chief marketing officer and had done a lot of work with Asustek, was so keen on the idea that he campaigned inside Intel to get the company onboard. When it came time to unveil the project in June, Maloney stood side by side with Shih at the Computex show in Taipei.


Intel signed on in February, agreeing to produce a 900-megahertz microprocessor and associated chips. Then, having committed the money and manpower, Intel told Shih and Shen that it wanted to see a prototype in one month. "When I heard that," laughs Shen, "I told Jonney, 'We've got nothing yet!'" Designers and engineers endured sleepless nights and long weekends and managed to put together the basics of the machine in time. Folks at Intel started calling it the Jonney machine.


The other components, like the 7-inch LCD screen and flash memory, were going to come off the shelf, but Asustek had to get the cost down low. "We had to really leverage our existing business relationships to get the components so cheaply," says Shen. And that's where being a contract manufacturer and clonemaking outfit came in handy. Having built computers, mobile phones, PDAs and iPods for Sony (nyse: SNE - news - people ), Apple and other big outfits for years, Asustek had connections with the big component manufacturers and big enough orders to leverage good prices out of them.


But low prices don't mean cheesy quality. "We want to create a revolution. We can't afford to put out a bad product," says Shen. The Eee PC's designer, Jimmy Chu--whose other designs include the Asus U1f, a $2,000 laptop with leather trim and stainless steel on the sides--says image is everything when it comes to selling laptops. "It has to look like you're getting more than you paid for." With the Eee PC, he says, the company did little things such as adding an extra-large hinge to give it more heft and durability.


A bigger hurdle was designing the user interface, the first thing people see when they turn on the machine, and the screens that lead to the programs. To scrimp, Asustek passed over Windows in favor of the freebie Linux operating system. It built its own user interface. That task was harder than it looked and occasioned a two-month holdup in the launch date. To test the interface, Asustek distributed 1,000 prototypes to employees and vendors, with orders to share them with family members of all ages. Bloggers on Eee PC Web sites that sprang up after the Computex show groaned that the product was taking too long to come out, but that didn't bother Shen. "We delayed," he says, "because with all the momentum built up around this product, I want to make sure it's exactly right."


Meanwhile, the prospect of millions of new PC users buying the Eee PC without Windows seemed to worry Microsoft (nasdaq: MSFT - news - people ). Just before the launch, it agreed to give Eee PC buyers the option of getting Windows XP for under $40, more than a third off the standard price.


Shih says Asustek will tap into a new market--consumers unable to buy computers because they're too expensive or just too intimidating. Indeed, the Eee name is supposed to stand for "easy to learn, easy to play, easy to work." So far 1 billion people have access to the Internet. The next billion customers will have shallow pockets



Ultra Mobile PC's


Various devices have tried to fill the role between a PDA and a full-blown laptop over the years, but none has taken off.


But 2008 could be the year when the Ultra Mobile PCs (UMPCs) finally have their day. The first devices were launched in 2006, but they have never gone mass market - partly because of a combination of high prices and poor battery life. But towards the end of 2007 a series of new products started to hit shelves.


The most talked about was the Asus eee, a sub-£200 laptop about the size of a hardback book. The Taiwanese manufacturer has predicted it will sell five million of the tiny machines in 2008. The low-cost laptop runs open source Linux software and weighs less than one kilogram. To cut down on weight it does away with a hard drive in favour of just 4GB of flash memory. Whilst the storage is small, its use of flash highlights another trend of 2008.


Flash memory has been gradually increasing in power. For example, electronics giant Samsung recently showed off chips that could be used to make 128GB memory cards.

As a result the technology is now starting to challenge hard drives as the storage of choice on laptops.


Apple is even rumoured to be launching ultra-thin Macbooks using flash in 2008.


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