Few products have won Compaq Computer as much favorable buzz as the sleek iPAQ Pocket PC. But Compaq, now part of Hewlett-Packard (HPQ ), neither designed nor made the iPAQ. The handheld and its clever system of interchangeable accessory sleeves were products of a Taiwanese company called HTC (www.htc.com.tw), one of an increasingly important breed known in the trade as original design manufacturers, or ODMs.
PC makers have been using contract manufacturers to build many of their products for years. Even IBM (IBM ), one of the last U.S. companies to do most of its own manufacturing, has contracted out all of its desktops and some ThinkPads. What's new here is the farming out of the design work as well. The amount of involvement by the "name" company ranges from extensive modifications of the ODM's work to simply slapping a logo on an off-the-shelf product.
Some ODMs, such as South Korea's Samsung and LG Electronics or Taiwan's Acer, market product lines under their own brands, too. Others, such as HTC and Quanta, also Taiwanese, exist almost entirely on contract work.
Consumers have no good way to know whether the well-known company that put its brand on a product designed or built it. But for the most part, it doesn't matter. The ODMs generally do good work, and to guarantee it, top-tier companies such as Compaq or Dell usually station their own quality-assurance inspectors at the contractors' facilities. The downside is that laptops, handhelds, and other high-tech products could become even more commodity-like.
One example of this is a handheld built by HTC and based on Microsoft's new Pocket PC Phone Edition. Wireless phone carrier mmO2 (formerly BT Cellnet) will sell it in Britain, Ireland, the Netherlands, and Germany as the XDA. VoiceStream Wireless (VSTR ) will introduce the same unit in the U.S. market under the T-Mobile brand of VoiceStream's corporate parent, Deutsche Telekom (DT ).
Sometimes the similarity of ODM products can get downright embarrassing. Dell (DELL ) and Gateway (GTW ) recently came out with a pair of notebooks, the Dell Latitude X200 and the Gateway 200, that seem identical except for their branding and some minor differences in components. In fact, they are the same product, designed and built by Korea's Samsung (which sells another version of the notebook in Asia under its own brand as the Q10). Both Dell and Gateway felt they needed an ultralight to fill out their product lines. They both snapped up the same off-the-shelf offering from Samsung.
A Gateway spokesperson says the company "was fully involved in the entire product-development process," though it chose, for cost reasons, not to modify the basic design. The two companies did make different choices in components and warranties: Gateway chose to include a docking station that incorporates a CD-ROM drive while Dell went for a stand-alone drive with an optional dock.
In the early days of laptops, Taiwanese imports, often sold under obscure brand names, had a reputation for dubious quality. Today, however, the quality of products from Taiwan, as well as those from Korean companies newer to the notebook business, is first-rate whether branded by top-tier companies like Compaq or Dell or lesser-known players such as WinBook. Apple's beautifully made Titanium G4 PowerBook, built by Quanta, is evidence of the sort of precision manufacturing that these companies can handle. And I haven't noticed big quality differences between, say, Dell laptops designed and built by an ODM in Taiwan and ThinkPads designed and built by IBM.
If consumers can't tell who makes laptops or even who designs them, how are they to choose? In the final tally, what really matters are the intangibles, such as the warranty, the service, and the tech support provided by the dealer and the company whose brand is on the product. The growing reliance on ODMs may be increasing commoditization of products and reducing variety. But it's also pushing down prices on high-quality products, and that's a good thing for consumers.