Asus Explained; A Rare Taiwanese Global Brand

Author’s note: If you want to watch the video first, you can below:

A lot of people commented on this one — essentially saying, “Rare?! Taiwan has SOOO many electronics companies! Taiwan is so strong in electronics!” I think this missed the point. Sure TSMC and Foxconn are massive companies. But the general public are not familiar with them. My point is that very few of Taiwan’s companies actually own a brand relationship with the end user.

That is because most of them start out being component suppliers or white label producers. And it is immensely hard to 1) Shift the mindset to being a B2C company, and 2) Have the money to pull it off - especially in the market you are not familiar with.

Is Taiwan capable of making more global B2C brands in the future - electronics or otherwise? I am not quite sure. Right now, I am going to say that the Taiwanese economy as it is today is not really geared towards doing that. They might buy one or two, like how Foxconn bought Sharp, though.

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Taiwan’s electronics industry features one of the few Taiwanese companies out there that has managed to cross the ravine from being a nameless manufacturer into an actual name brand. 

Asus, or AsusTek as it is sometimes also called, started off making motherboards. It leveraged that skill into making computers for sale under other brands. But the company wanted to do more than just labor in the shadows for other people. 

The company managed to navigate a tricky web of relationships to do so. And today, it markets and sells under its own name computers, laptops, and even high-performance gaming phones that regularly garner praise from YouTube tech reviewers. In this video we will trace their journey, review their strategy and more. 

## Beginnings 

Asus was founded in 1989 by four owner-operators looking to start a small company. The four founders had worked together at another one of Taiwan's big electronics brands: Acer. They named their company after the mythical creature Pegasus. 

A year later, Asus was incorporated with a million dollars in startup capital. Originally, the company was positioned as a design firm, offering consulting services without any manufacturing included. Their first speciality was in motherboards. 

For those who might not be familiar with such things, a motherboard is a printed circuit board that holds and communicates between the various parts of your computer. You would connect your mouse, keyboard, memory, and CPU and the "Mobo" as they call it would help them work together. 

In 1990, Intel released the Intel 486 motherboard as an engineering sample - meaning that it was compatible with their i486 microprocessor. Such samples helped kickstart the ecosystem around the new chip. The four members of Asus leveraged their experience with the previous generation 386 motherboards as well as publicly available engineering details to build a 486 motherboard of their own.

Intel was impressed by Asus' motherboard, which performed better than their own engineering sample in several aspects. Thus, Asus received their first manufacturing job and in November 1990, they released the EISA 486 motherboard. 

Working directly with Intel allowed Asus to receive engineering specs and details 3-6 months early. This seemingly short head start allowed them to become a leader in the motherboard industry. In its first full year of operation, Asus made $30 million USD in revenue. 

## Expansion 

In these early years, Asus focused on making the best motherboards that they possibly could. But motherboards were a niche industry. When Intel CEO Andy Grove visited Taiwan in 1996, he remarked: 

> I never thought that motherboards could become an important industry on their own

They was a big fish in a small pond. All the profits flowed to the makers of processors (Intel) and the operating system (Microsoft). Motherboards themselves remained a commodity. 

But as the late 90s were coming about, other motherboard makers were catching up to Asus. The company still made very good, high-end motherboards. But they had given up the low-end market and competitors were climbing the ladder. In other words, Asus was finding itself disrupted. 

This is a dilemma that every country and industry faces. When you find yourself challenged by low-cost competitors in your market, what do you do next? How do you survive?

Asus decided that they had to diversify their product and business lines. On the product side, they expanded into other components like modems and graphics cards. They would sell these under their own brands. 

In 1989, the company also began manufacturing notebooks and other electronics for other brands. This business model is referred to as being an "original design manufacturer". A company that designs and manufactures a product to be sold under another brand. 

## Conflicts of Interest 

Throughout the 2000s, Asus manufactured notebooks, server computers, and other stuff for companies like HP, Dell, Apple and Sony. But they also tried to sell the same products under their own brand names. 

This was a clear conflict of interest. Customers on the original design manufacturer side could not be sure whether or not their information would be used to compete with them in the end user market. Apple famously had the same concerns with Samsung. 

In 2007, Apple significantly dialed down its MacBook manufacturing business with Asus and the company had to respond. That same year, they announced that they would hive off their original design manufacturing business into a 100% owned subsidiary called Pegatron. Management hoped this would reassure their customers that improper information cannot be shared across lines. 

But the conflicts of interest persisted. And even got worse when Asus released its hit Eee laptop product. The first so-called netbook, the low-end PC sold 5 million units at the start and presented a real threat to Pegatron's customers. They were eating in other companies' market share. 

Now the conflict of interest really was a problem. Why on earth would anyone want to work with Pegatron and fund their own competitor?

## Split and Spinoff 

To fix things once and for all, Asus announced in January 2008 that it would split the three companies entirely. Asus would go on to develop the Asus electronics and notebooks brand. Pegatron would go independent with component manufacturing and original design manufacturing. The third, Unihan was to produce non-PC products like cases and molding, but would eventually get merged back into Pegatron. 

The split took nearly two years and was completed in December 2009. Asus sold the last of its shares in Pegatron six months later. 

The split allowed the two companies to succeed on their own. It gave Pegatron the ability to win back business it had previously lost, including Apple's. Asus could now focus on developing its line of laptops and PC components. 

Today, Pegatron is Taiwan's second largest company judging by revenue, with $47 billion. Only Foxconn and its associated companies are larger, with $172 billion. Asus remains a major customer, buying millions of notebooks from its sibling, but it has diversified its supply chain to include other assemblers like Foxconn and Quanta. 

The split was also quite successful financially. In the five years since the spin-off, Asus' stock price rose 417% from $64.40 to $333. Pegatron's stock did not do quite so well, but still surged 50%. 

## Asus Today 

In 2020, Asus made about $13 billion revenue and a little less than a billion in net profit. Despite being one of the few Taiwanese brands that consumers can name off the top of their head, the company is ranked behind Taiwan's financial, semiconductor, industrial and electronics assembly giants.

The company sells two broad categories of products - PCs and PC components - to consumers around the world. They have major manufacturing sites in Taiwan, China, Mexico, and the Czech Republic. 

On the components side, the company still has dominant market share in motherboards. But they also offer other components like routers, monitors, graphics cards and sound cards. The company's history gives it an advantage there. 

On the Personal Computer side, the company sells a wide range of products. In 2020, they were the 5th largest vendor when judged by computers shipped, right behind Apple and ahead of Acer. But its speciality is in laptops, offering over 200 varieties. It sells laptops under its VivoBook, ZenBook, and ExpertBook - targeting a wide range of customers. 

Their high-end gaming brand Republic of Gamers (ROG) is one of the more well known in the industry. ASUS markets their ROG-branded laptops as the preferred PC brand for American gamers, whatever that might mean. There are ROG-branded peripherals, computers, routers, and even gaming phones. 

This jumbled, super-broad product line might seem to be a mistake. After all, didn't Steve Jobs want all of Apple's products to fit on a single table? But it seems to work for ASUS. Here's why. 

## Corporate Strategy 

The Windows laptop vendor world is challenging and low margin. When all your competitors are running the same operating system as you, it is hard to differentiate yourself. You have to make something that stands out from the crowd, or else Dell and Lenovo will grind you to dust. 

So the company's approach has been to deliver low cost, high value products to its consumers. It leverages its wide distribution and close supply chain partnerships to grind out profit at scale. This means leveraging all the benefits of having an outsourced assembly company: Fast turnaround on product development, fast ramp up of production, and equally fast dialing down when sales start to flag. 

Meanwhile, Asus looks to carve out niches to find profitable blue oceans to survive in. I talked about this strategy in my video about the Nintendo Wii. If you want to learn more about the upsides and downfalls of that strategy, go watch that. 

One major niche is the aforementioned gaming sector. Gamers are less price conscious than the ordinary laptop consumer and are willing to splurge for a high margin, high-performance machine. 

Another is in new, innovative form factors. The ZenBook Duo is one such laptop. It experiments with the dual-screen concept, embedding the second screen alongside the keyboard below the main screen. Many of these experimental products are not going to sell well. When that happens, the company ramp down hard on production to cut its losses. 

But when it succeeds, the reward can be massive. After all, ASUS first rose to prominence on the back of its discovery of the netbook niche with the Eee PC. Though the netbook market did not last, the strategy stamped ASUS's ticket to the big time. That is why you grind, because like how it is with making YouTube videos you never know what might go viral. 

## Conclusion 

Taiwan's economy punches above its weight, with market-leading companies in disparate industries like chemicals, bicycles, and electronics. 

But another one of the issues market watchers and critics bring up about the Taiwanese economy is its inability to build global brands. Where are Taiwan's global brands? Like a Samsung, Apple, Nike, or Louis Vuitton. Is there a Taiwanese company that people the world over recognize?

There are a lot of reasons why Taiwan is missing that big consumer brand. Here’s my thinking. One, the island itself is a non-English speaking market too small to incubate a consumer contender. Second, Taiwan's companies have focused their efforts on the components and reference design business. It is a good, profitable business. Who wants to deal with end users? Yuck!

And lastly, it is just hard to do. ASUS successfully crossed that void from being a supplier to becoming a global brand, but it needed a massive, complicated split and stock spinoff in order to pull it off. Thinking about its journey, it makes a lot of sense why it has not happened as much as you might think.