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October 18, 2005 10:36 pm

Founder Group reduces reliance on PCs

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Founder Group, China’s second biggest personal computer vendor, is moving to establish itself as a chip designer and manufacturer as part of a strategic effort to reduce its dependence on the low-margin PC business.

Wei Xin, Founder chairman, said the group had already established a computer chip factory in southern China and was considering hiring Chinese working or studying in the US to staff a proposed integrated circuit design venture.

Founder could no longer focus so much effort on the relatively unrewarding PC business and had to seek new niches in the supply chain, Prof Wei told the FT.

“We should turn to the higher value-added part of the chain,” he said.

Founder will continue to produce PCs, but the change of focus to more upstream IT sectors marks a strategic shift for a sprawling group that already spans medical products and services and software applications.

The move underlines the difficulties facing second-tier PC manufacturers around the world as standardisation and fierce competition nibbles away at their margins.

The challenge is intense even in China, where Founder accounts for about 12 per cent of the rapidly growing PC market but earned less than Rmb160m (US$19.8m) last year on PC sales of about Rmb6bn.

In recent years China’s PC vendors have come under added pressure from expansion in the market by foreign competitors such as Dell, which has a large
factory in the south-eastern province of Fujian and now accounts for over 9 per cent of Chinese PC sales.

Lenovo, the Chinese market leader, last year responded to such challenges by buying the PC unit of IBM, a deal that made it the world’s third largest PC vendor after Dell and Hewlett-Packard.

However, Prof Wei said such a move was impossible for Founder, which was expanding its PC production capacity from last year’s 3m units but still lacked the scale to challenge for a top three place in the global industry.

“Founder is not so aggressive,” he said.  

Instead it has established a joint venture chipmaker in the southern city of Shenzhen that will make niche memory chips, he said.

Founder had invested Rmb600m in construction of the fabrication plant and expected its output to reach 6,000 six-inch wafers a month in 2006, he said.

The Chinese group expects to strike a deal with Ramtron International, a Nasdaq-listed memory chip developer under which the US company will contribute core intellectual property to the venture.

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