Taiwan's Computer Makers Break Out From Behind The Scenes

Why the Taiwanese are buying up U.S. computer companies

Over the last few years, ComputerLand has been the great shrinking giant of PC retailing in the U.S. But to Matthew F. Miao, it's a golden opportunity. On Jan. 20, Miao's Mitac Inc., Taiwan's third-largest computer maker, became the latest in a string of companies to take over the troubled retail chain, which fell on hard times when consumer buying habits shifted away from authorized dealerships to direct marketing and computer superstores. Miao believes that ComputerLand's 200 remaining stores, which now focus on selling to businesses, will give him the presence he needs to make an impact in the U.S.

Mitac is not the only Taiwan tech company looking for American deals. Days after Mitac's deal was announced, Acer Inc. said it was taking over the fast-growing notebook PC business of Texas Instruments Inc. Other Taiwanese companies have recently bought Silicon Valley outfits such as microcomputer-maker Everex and the Apple clone division of Radius Inc.

BIGGER PROFITS. The Taiwanese want to break out of their roles as behind-the-scenes suppliers of hardware to big-name foreign computer companies, a business known as original-equipment manufacturing (OEM). By purchasing U.S. companies with established sales channels, Taiwanese manufacturers hope to enjoy the bigger profits that come with having their own brand names and selling directly to major corporate customers.

That's the reason Mitac President Miao decided to gamble on ComputerLand. The chain was a financial disaster for its latest owner, computer distributor Merisel Inc., which paid $114 million in 1994. Some observers are baffled by the move. "The ComputerLand franchise no longer has much value," says Palo Alto (Calif.) computer consultant Seymour Merrin. "[Mitac] will have a hell of a problem." But Miao figures with a little investment and better inventory control, the $1 billion chain can boost its sales at least 60%. What's more, ComputerLand is a big supplier to businesses and PC resellers and should combine nicely with Mitac's own $1 billion Fremont (Calif.)-based distribution unit, Synnex Information Technologies. The deal gives Mitac a much broader platform to push its own brands in the U.S., Japan, and Europe.

HIT NOTEBOOKS. Acer wants a similar boost through its acquisition of TI's notebook PC business. Acer is strong in manufacturing and in the home-PC business. But, says Gregory D. Nakagawa, major account sales director for Acer America Corp., "we were lacking a corporate market." Though TI has just decided to abandon PCs overall, its notebooks have been a hit, thanks to its highly rated TravelMate and Extensa brands. According to Dataquest Inc., TI has vaulted into the No. 4 spot in the U.S. notebook market, more than tripling sales in the past two years. But TI management tired of the skimpy profits. Acer, which assembled TI's high-end notebook lines and has other tie-ups with the company, was a natural buyer. Besides TravelMate and Extensa, Acer also gets TI's PC distribution unit, which has big accounts with companies such as Ford Motor Co. and Bankers Trust.

Sounds good, but analysts are reserving judgment. Most earlier Taiwanese forays in the U.S., including Acer's buyout of Altos Computer Systems and Mitac's acquisition of Wyse Technology Inc. in the 1980s, were considered overpriced and poorly timed.

Yet the Taiwanese must find more profitable niches than hardware manufacturing, where relentless price wars keep margins thin. "They have to do something if they want to escape the OEM trap," says SBC Warburg Securities Ltd. analyst Liu Chi-tung. Failure can be expensive. But it's a risk the Taiwanese will run to have greater control over their destiny.

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