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Gigabyte and Asustek shake on the deal - Image courtesy HKEPC
Parent company Gigabyte Technology today granted the use of its brand to child company Gigabyte United

Today is not just a day which lives in infamy for WWII buffs. December 7 marks a historic date for Gigabyte Technology Inc., as it officially begins its executive trademark license of its brand to “Gigabyte United,” a joint venture with Asustek. The agreement was originally announced in August, with an initial capital of NT$8 billion (approx. US$244 million) and the terms being that Gigabyte will own a 51% stake in the company, with Asustek picking up the other 49%.


“The motherboard industry is a matured one, with slow growth and fierce competition. The Gigabyte/Asustek alliance will increase the competitiveness of both parties, and benefit the overall developments of the motherboard industry,” wrote Gigabyte in a statement. “In addition, by consolidating both companies’ resources, we will establish the world’s best motherboard and graphics card development platform to provide high-quality products and services.”


The Gigabyte United deal only applies to Gigabyte’s branded motherboard and graphics card business group, but none of its contract manufacturing business. There will be no changes to Gigabyte’s OEM/ODM business. As such, Gigabyte United’s core businesses are development and sales of motherboards and graphics cards. Decisions on manufacturing outsource will be made independently by the joint venture, which is headed mostly by original members of Gigabyte.


“Gigabyte has extensive experiences in the motherboard and graphics card industry, including channel expertise, excellent brand image and a sizable share of the market,” read the statement. “To leverage Gigabyte’s past efforts and success, and maintain good relationships with vendors and customers, the joint venture will utilize the original teams from Gigabyte’s branded motherboard and graphics card business and will run independently from Gigabyte and Asustek.”


Not widely publicized was one of Gigabyte’s prime reasons behind the alliance with Asustek: it was trying to avoid a takeover by Foxconn. China-based Foxconn specialized in mass producing components to OEM partners. It did not have a specific channel to sell to end customers, and because of this deficiency, it lusted after Gigabyte’s brand and good standing. Foxconn had made several indications over the last couple of years that it was interested in taking over Gigabyte as a quick and easy way to transform itself into a popular brand.


“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,” explained Tim Handley, Marketing Manager for Gigabyte, in an interview with DQ Channels. “Also, we can now make cheaper motherboards, without compromising on the quality.”


Handley also said that Gigabyte could be open to other merger and acquisition opportunities “when the market demands it” of the company. He further clarified that Gigabyte United functions “as a manufacturing arm of motherboards and graphics cards” and will share no technology or branding with Asus, and will continue to compete with its alliance partner as it always did in the past.


Gigabyte United will operate separate from its parent and it will have to pay licensing fees for the use of the Gigabyte brand on the generous terms that it will pay 50 percent of its operating profit to Gigabyte for the first three years, after decreasing to 33 percent the following two years. From Gigabyte’s perspective, this deal has little in the way of downsides.


“This is an entirely win-win situation for us. For starters, we will now be able to concentrate more on R&D,” continued Handley. “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.”


Gigabyte currently has technological agreements with CPU makers AMD and Intel, which carry over to Gigabyte United. By keeping its business and technology separate from Asustek, Gigabyte retains all its existing relationships with its present OEM partners while picking up new ones through its new found strength in its alliance.


“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,” said Handley. “This in turn will make us a stronger player in the market.”

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Why is Asus interested in this deal?
By Sahrin on 12/8/2006 4:42:45 PM , Rating: 2
I can't see a valid reason why Asus would be able to extract value out of this deal. It's great for Gigabyte - save millions in R&D costs for GPU AIB's and the most costly to develop motherboards (enthusiast or professional grade hardware), and Asus is essentially the market leader in every segment of the motherboard retail market - so why deal with Gigabyte? Foxconn only competes with Asus in terms of volume, not quality. *shrug* I never have viewed Gigabyte as a serious competitor to the likes of Asus (heck, there aren't many competitors to Asus period - DFI stands up at the top end, but who else? Sapphire? Maybe someday. Abit's old news).

By ThisSpaceForRent on 12/10/2006 4:21:47 PM , Rating: 2
Perhaps Gigabyte has better manufacturing capabilities. If they have excess capacity they aren't using, and Asus was in need of extra capacity, then this deal starts to make more sense. My take on the situation is that Asus will be the R&D side of things, while Gigabyte will be the manufacturing side. If this allows them to drop the price on their higher quality products, higher quality than Foxconn i.e. more features, then long term this would be a valid strategy.

It's been in the wings for years
By iNGEN on 12/7/2006 12:20:21 PM , Rating: 3
The consolidation of the motherboard industry enters full swing! Mark my words, within ten years there will be three motherboard manufacturers that control 95% of the market.

I know this isn't a merger, in fact, it's actually a divesture of sorts, but it nonetheless heralds a coming trend.

By cheetah2k on 12/7/2006 9:46:00 PM , Rating: 3
Well well.

This can mean only good news for both loyal Asus and Gigabyte consumers.

Gigabyte will be surely enhanced by Asus's ingenuity and superior design, and Asus will definately benefit by learning Gigabyte's unmatched, unrivaled quality and stability.

Just a thought...
By McTwist on 12/7/2006 1:12:53 PM , Rating: 2
Will Gigabyte sound obsolete in a few years when TB drives are the standard?
I mean 20th Century Fox sounds ancient.

By Oregonian2 on 12/7/2006 1:59:23 PM , Rating: 2
Do hope it works out and indeed the quality doesn't drop as they increase their margins in lowering cost. Gigabyte is my current company-du-jour for MBs and video cards in my unplanned but historically bi-yearly upgrades.

go figure
By Samus on 12/8/2006 7:12:07 PM , Rating: 2
no surprise that gigabyte and asus both make the best motherboards in the world, oem and otherwise.

By rupaniii on 12/10/2006 11:33:26 PM , Rating: 2
I have to believe people inside both companies work for FoxCon and set this up so they can just take both over later.
Adopting the gigabyte brand name is disaster in itself.
Asus v. Gigabyte, in the US, no contest.

Someone was asleep at this wheel.

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