The sad fall of Taiwan's Via Technologies picked up speed Dec. 19 when Bear Stearns (BSC) dropped analyst coverage of the company. Once the top chip-design company in Taiwan and one of the world's premier makers of chipsets for PCs, Via had ambitions of entering the major leagues by creating microprocessors that would compete directly with those of Intel (INTC) and Advanced Micro Devices (AMD). Back in the late 1990s and early 2000s, Via was a headache for Intel, which charged the Taiwanese company with getting ahead by violating its intellectual property (BusinessWeek.com, 11/5/01).
No doubt Intel execs are now smiling as things haven't worked out so well for Via and its plans to enter the microprocessor business. It turns out there's a very good reason Intel and AMD dominate the high end of the chip business: Making microprocessors (also known as central processing units, or CPUs) is no walk in the park, and convincing computers to switch to an unfamiliar alternative is even harder. Via's stock price, which traded at 50 Taiwan dollars in mid-2003, is now at 17. This year alone, it has dropped 56%. Sales for the first 11 months of 2007 were down 31%, to $430 million.
Bear Stearns decided that Via no longer warranted coverage even though just a day earlier Via struck a deal with China Unicom to provide the Chinese state-owned cellular operator with CDMA chips. "Given the company's uncertain growth prospects, investor interest in the stock has diminished substantially," the Bear analysts wrote. The big problem: "It is increasingly difficult for Via to compete with Intel in the chipset market, given Intel's dominance in CPUs." Via spokesman Richard Brown declined to respond directly to a question concerning Bear Stearns' decision, but in an e-mail reply acknowledged that "we have undergone a challenging transition over the past few years from being a core-logic chipset company to becoming a complete x86 platform provider."
Sister Company of High Tech Computer
One of investors' main worries is Via's exposure to additional pressure from Intel. A licensing deal that Via has with Intel expires in April, and Bear analysts believe there's a good chance Via will have to pay a lot more in royalties in order to renew. Via's chipset market share has plunged from 18% in last year's third quarter to 11.4% in the third quarter of this year.
Even for people who don't follow the chip industry, Via's difficulties are significant for another reason. It's a sister company of High Tech Computer (HTC), the Taiwanese high-flyer and world's premier maker of smartphones using Windows software. Both have Cher Wang, daughter of Taiwanese nonagenarian billionaire Wang Yung-ching, as their chairwoman. And in the Taiwanese electronics world, HTC has replaced Via as the aspiring giant slayer. Just as Via once had ambitions of taking on Intel, HTC now is gunning for one of the biggest names in the U.S. consumer-electronics world: Apple (AAPL).
Both HTC and Apple launched touchscreen phones in June—the Touch for HTC and, of course, the iPhone for Apple. HTC chief Peter Chou boasts that HTC's telecom technology (BusinessWeek.com, 9/17/07) is much better than Apple's. "The iPhone design is very beautiful," he told BusinessWeek in September. "However, the phone design is quite weak. It's very, very basic."
Teaming Up With Google
HTC and Via are separate companies, and the troubles at one don't lead to troubles at the other. But as Via's woes show, there are major risks involved when a Taiwanese company aims so high. And there's no denying that these are also more difficult days for HTC. The company has been trying to develop its own brand and move away from its reliance on contract manufacturing (BusinessWeek.com, 11/12/07).
It's had some success: Sales through November hit a record of $3.3 billion, up 9.3% over the same period in 2006. However, the company's stock price has dropped 25% in the past two months as investors worry that increased competition in the smartphone business is eroding HTC's profits, which were $776 million last year.
One potential bright spot for HTC in the new year: Google (GOOG) announced Nov. 5 that HTC is one of the companies the search giant has teamed up with for its much anticipated new phone, the Android, due out in the second half of 2008. Like Via, HTC is targeting one of the biggest names in the electronics world. But unlike its Taiwanese relative, HTC has enlisted another big name to give it a lift.