The Laptop Supply Chain

Carl Bialik from the WSJ writes "When a U.S. consumer orders a laptop from HP or other big sellers, how does the machine get made? Often via a complex supply chain in Taiwan and China, shaped by rocky cross-Strait relations, according to the Wall Street Journal: 'Outsourcing to low-cost, high-quality Taiwanese manufacturers has helped make Dell and H-P the world's top two PC companies in terms of sales...But the relationship between U.S. computer firms and their third-party manufacturers can be tricky. In the struggle to retain an element of control over their suppliers, H-P, Dell and others play contract manufacturers against each other to keep prices falling and ensure no supplier gains too much leverage.'"

Comments

Build

[xerid]

I build my own. This way I can play, too.

Re:Build

[ID000001]

There are barebone notebook with just the case and motherboard these day (Many avaialble at www.newegg.com for instant) and let you have some flexiablity in setting up a notebook yourself as far as component goes. Brand like Acer, ECS are very popular.
Still much more limiting then a desktop PC, but it is a far cry from a few years ago where you can only have one model of video card and one properity casing CD-Rom drive you can upgrade to a writer for $200.

uh?

[Mr_Silver]

In the struggle to retain an element of control over their suppliers, H-P, Dell and others play contract manufacturers against each other to keep prices falling and ensure no supplier gains too much leverage

... and how this is different from every other industry?

As a consumer, if you want your products nice and cheap, then these sorts of negotiations are par for the course. If they didn't do it, you'd take your money elsewhere.

Re:uh?

[dsginter]

If they didn't do it, you'd take your money elsewhere.

There's really no "elsewhere" in the laptop market. All manufacturers make dirt upon initial sale but then rape the customer when they break the LCD or need a replacement battery. This is why the laptop industry needs an open laptop form factor - LCD swaps would be about $150 and batteries would be $20.

FWIW, I actually do laptop repair on the side and I've noticed that every battery pack contains the same 3.6V cells. There *is* a standard, the vendors just put the cells into proprietary cases so we can't interchange them.

Re:uh?

[mikael]

Look at the X-ray photographs of laptops. Another one here.

You can clearly see that each "single" battery, is a serial arrangement of eight smaller cells.

Who knew?

[MarkGriz]

"... shaped by rocky cross-Strait relations"

Who knew that laptop technology was influenced so much by country music. And, why is he so cross anyhow?

That's great!

[dextroz]

In a few years, no one on continental America will know how to put a laptop together :-/ But they'll be great at tracking DHL/AirBorne and of course flipping burgers ;-)

Lower price...

[ID000001]

means at least the saving are pass onto the consumer. Admittedly though, there are not a whole lot of choices when you buy a laptop. More often then not you will not be told where the laptop are made unless you can see the underside of it.
Since customer perfers price over quality in general, it is not really the companies fault to find the cheapest supplier.

Interesting...

[lucabrasi999]

From TFA:

Outsourcing to low-cost, high-quality Taiwanese manufacturers has helped make Dell and H-P the world's top two PC companies in terms of sales. International Business Machines Corp., which outsourced less than half of its laptop production, according to Merrill Lynch, and operated its own factory in China, consistently lost money on its PCs. It sold the business this year to China's Lenovo Group Ltd., which has used Taiwanese companies to make most of its notebooks in China.

So, IBM used to keep most of it's own laptop production in-house. Which may partially explain why the ThinkPad's are, by far, the best laptops around. Let's see what happens to the ThinkPad now that Lenovo runs the show.

Re:Interesting...

[lucabrasi999]

Lets put it this way, if IBM had upped their prices to the level they needed to in order to make the same money as HP and Dell, would you pay that extra money to get the quality? And would enough people pay that extra to help IBM succeed in a volume business, or would their prices have to rise still further to ensure profits in a niche.

Pre-Lenovo, the IBM laptop tended to be significanly more expensive than any of it's major competitors (not counting Apple). Therefore, IBM had already included the higher quality of their laptop in the price. The ThinkPad is a very popular purchase amongst corporations. Companies were willing to pay the extra price for the perceived quality and service that IBM provided.

IBM products were good, but too cheap for IBM to make money on it.

Last year, IBM made a profit on the PC and laptop business. But, they only made 1 or 2 percentage points profit on that hardware. I just checked HP's web site and they reported a profit margin of 2.1% on their PC's and Laptops for the first quarter of 2005. So, the margins IBM was making were comparable to at least one of it's main competitors.

And their opinion was clearly that technical superiority meant nothing in a market that appears to be dominated by price.

I think you are right on this point, but I would have phrased it differently. IBM's opinion was that laptops and PC's have become a commodity and the profit margins were too thin to justify remaining in that line of business. IBM does still has a "toe-hold" in the PC/laptop business, since it owns a minority share of Lenovo.

Imagine the effects of a Chinese attack on Taiwan.

[Infinite Entropy]

I always worried about the effect that any Taiwan-China conflict could have on the supply of computers. It seems almost all motherboards are made in Taiwan and a whole lotta RAM.

Taiwan: Laptops are just the tip...

[Nova Express]

...of Taiwan's importance to the Gloval High tech economy. Even more important are the roles of Taiwan semiconductor foundry houses like TSMC and UMC. Taiwan dominates the foundry business (IBM and Singapore's Chartered have significantly lower volumes), and with more and more chip design firms going fabless, an ever-greater percentage of cutting-edge chip designs flow through Taiwan. Indeed, it would be hard to find a computer or MP3 player sold today which didn't have a part fabbed in Taiwan.

Now, imagine what would happen to America's high tech industry if Communist China invaded...

Re:Taiwan: Laptops are just the tip...

[WhiteWolf666]

Consquences of a China threatening to invade Taiwan?

The U.S. moves the seventh fleet towards Taiwan.

For those who don't know; The seventh fleet is the world's largest naval armada, and its currently stationed at a port in Japan.

I believe it constitutes *multiple* aircraft carrier battle groups, as includes nuclear armaments. That fleet alone would be enough to level most of Asia, let alone China.

China, although it may threaten, and although it has a nuclear arsenal, does *NOT* have the capability to invade Taiwan. China's *entire* navy consists of the following:

http://www.navyleague.org/seapower/chinas_navy_tod ay.htm

he acquisition of these technologies resulted in China's production of more advanced surface combatants during the past decade-- including a single 6,000-ton Luhai-class guided-missile destroyer (DDG), two Luhu-class DDGs (4,200 tons), and nine Jiangwei-class frigates (2,250 tons). These units are equipped with the HQ-7 or HQ-61 short-range air defense systems that likely will be replaced by a longer-range vertical-launch system within the next three to five years. These ships also have integrated tactical data systems, an improved antisubmarine warfare suite that includes embarked helicopters, and gas turbine propulsion.

Notwithstanding these improvements, the backbone of the PLA surface fleet remains its 16 aging Luda-class destroyers (3,250 tons) and 30 Jianghu-class frigates (1,425 tons) that are largely inadequate to meet the requirements of modern warfare. The planned acquisition of two 7,940-ton Russian-built Sovremenny-class DDGs in the 2000 to 2001 period will improve the PLAN's surface-combatant capabilities. These units are likely to be equipped with an advanced SAN-7 air-defense system, the KA-28 Helix Helicopter, and SSN-22 cruise-missile technology. The PLAN's HQ-61 and HQ-7 systems are based on the French Crotale land-based surface-to-air missile system, and they do not provide surface units with an effective area-defense capability. This deficiency makes PLAN surface units extremely vulnerable to air attack.

Furthermore, China's airfore consists of 20-30 year old Russia planes in various states of maintenance.

Taiwan's airforce consists of the latest and greatest American military hardware that their economy can purchase. Consider that Taiwan spends about 1/6 of the amount China spends on their military. This is to defend a small island, while the Chinese expenditure must go towards the entire nation.

This is in addition to the U.S. unofficial military support.
List of Taiwanese naval ships: http://www.fas.org/man/dod-101/sys/ship/row/rocn/

As of right now, I would not be certain that China had naval superiority over Taiwan *alone*, ignoring that the U.S. navy makes both look incredibly puny. Considering the following facts:
1. No Naval superiority for China
2. Air superiority for Taiwan
3. Massive naval superiority of the U.S.
4. ~$120 billion in trade between TaiwanChina
5. Reluctance of China to employ nuclear weapons

I'd say its *extremely* unlikely that China will seriously consider invading Taiwan over the next 50 years. Saber rattle? Perhaps. Let loose the people's army? No way.

The ongoing pattern..

[Registered Coward v2]

What I found interesting was the move to manufacturering the more expensive components in China - that is the next place to look for cost reductions. It'll take a while, but it will happen - leaving Tiawan to do higher end engineering and component fab, with the commodity stuff outsourced (much like we do today).

China's also developing the engineering talent to do the design work - Siemen's already does cell phone work their; China certainly has the talent to develop into a major player. Of course, political challenges - how do you keep such diverse country in one piece if you lessen the central control.

If I were India, I'd be worrying about the Chinese developing enough English speakers to capture the call center business.

Ooo! I know!

[Quiet_Desperation]

"When a U.S. consumer orders a laptop from HP or other big sellers, how does the machine get made?

Magic elves.

I'm more concerned about the lapdance supply chain.

The big picture: American industrial/tech decline

[intnsred]

Having our laptops and PCs made this way may seem great -- for as long as the Chinese keep funding our ever-increasing trade deficit by taking our declining dollars and purchasing our treasury bonds.

Dell and HP are at least keeping some design and marketing jobs in the US. :-/

But if they follow the lead of many other American companies (e.g. GE), that design will be out-sourced overseas. American corporations are being destroyed by their own greed and shortsightedness. Many American companies are now only shells -- they're a brand name with a US-based sales and marketing force and everything else done overseas.

Fool yourself if you want, this is not a sustainable way of doing business. Consumers may think they've got it great now, with prices going down. But those same consumers are transferring wealth overseas and we're only able to do it now because the rest of the world allows the US to get into debt that no developing country could -- we can do it only because of the dollar's dominance.

Eventually that dollar dominance will evaporate and we'll realize that we transferred huge amounts of wealth and industrial power to foreign countries, all based on an ideology of greed and "free" trade.

Now, none of these are my own ideas; this is seen clearly by those on the political left and also by "traditional" conservatives. People like Reagan's Asst. Sec. of the Treasury and former Wall St. Journal editor Paul Craig Roberts have written extensively on this foolish but deliberate economic suicide. The mainstream corporate mass media avoids this -- it may upset people, cause them to question the conventional wisdom, or, worse in their view, impact their short-term profits.

Laugh and enjoy it while we can; things that can't go on forever don't.

Manufacturer designs making headway

[poity]

While large manufacturers build machines on exclusive designs from resellers like Dell, IBM, HP, Sony, etc., many of these same manufacturers have thier own branded designs available through smaller resellers.

These manufacturer designs are cheaper because they are often sold unbranded. They also experience shorter timespans between hardware revisions because they don't have to wait for those exclusive design specs from resellers, and thus often have the latest components in their models months ahead of those from the major resellers.

ASUS, one of the largest manufacturers in Asia, supplies Apple with Powerbooks, iPod shuffle & minis, Sony with many of their laptops, and have been an on-and-off builder for IBM in the past (there was a report in March of ASUS in major talks with Lenovo to be their supplier in the future), among other famous names. This is one of the many well-kept secrets in the laptop industry.

ASUS has seen their own laptop line more than double in sales since last year, mainly due to word of mouth between computer enthusiasts venturing into the laptop market.

Major manufacturers who supply brand name resellers as well as popular specialty shops:

ASUS
Mitac
Uniwill
Clevo
Compal

Some resellers (VoodooPC, Falcon Northwest, Hypersonic, ABS, and Alienware among others) add some paint and a label (and, like good captalists, at least $500 to the pricetag) to these machines to come up with their own specialty models. Many other less visible resellers (MWave, Discountlaptops, ISTNC, Proportable, and others) sell the exact same machines unbranded in customizable barebone configurations for incredibly low prices.

As computer enthusiasts ditch their unwieldy desktops for portable solutions, we will find manufacturer brands becoming more and more visible to the general public, and large brands will have even more competition.