The Mini-Laptop Changing the Game

Shih is focusing on design to differentiate Asustek's laptops David Hartung

While computer makers have pushed to build faster, more powerful laptops in recent years, the executives at Taiwan's Asustek Computer decided to try something different. They thought some people wanted a simpler computer. And they were right. Since its introduction last October, Asustek's Eee PC—a mini-laptop that retails for as little as $300—has become a huge hit around the world. The company expects to sell 5 million units this year. "We changed the concept," says Chief Executive Officer Jerry Shen.

He's changing the public's perception of Asustek, too. The Taipei-based company has long operated in the obscurity that characterizes the manufacturers of computer components for Western tech vendors. Asustek has never built a brand name that could approach those of such Asian rivals as Lenovo (LNVGY) or Acer. Now, thanks to the success of the little Eee PC and some other innovative designs, Asustek has a chance to break into tech's big leagues. The company, which sells the mini-laptop in the U.S. through retailers such as Amazon.com (AMZN) and Best Buy (BBY), is already the world's No. 6 producer of notebook computers and aims to crack the top three by 2013. Those spots are currently held by Hewlett-Packard (HPQ), Dell (DELL), and Acer.

To differentiate Asustek from other Taiwanese electronics companies, Shen and his boss, Chairman Jonney Shih, have been focusing on design. In January the company spun off its contract manufacturing division, and it's beefing up Asustek's design team. Last year Shih appointed Lee Kuo-kun, a professor from a local fine arts school, to be a consultant. The two meet every month at Shih's office for coffee, green tea, and long discussions about aesthetics, philosophy, and technology. "All of life is art," Lee explains.

Many of Asustek's designs adorn niche products. The company works with Lamborghini on a line of flashy computers that feature the same materials used in the Italian automaker's sports cars. Asustek's designers boast that they were first to introduce leather-covered notebooks, and in March they unveiled computers with a bamboo exterior to appeal to green-conscious consumers. The goal, says senior designer Jimmy Chu, is "to transform the notebook from a production tool into a more personal item."

Asustek still faces some big challenges before it can join the tech industry's elite. Some caution that the mini-laptop's success could erode profitability at Asustek, which made $910 million last year on sales of $24.9billion. Daiwa Institute of Research analyst Calvin Huang estimates the Eee PC's margins are 10% to 15%, compared with gross margins of 21.5% for the whole company. With Hewlett-Packard, Acer, and Dell gearing up to start selling similar machines, margin pressure is likely to grow. "The Eee PC is a significant innovation in the PC industry," Huang wrote in a report last month, but "its success is unlikely to be sustained."

Analysts also question whether mainstream consumers will see mini-laptops as too limited. The Eee PC allows users to chat, check e-mail, and surf the Net, but not to play the latest online games or upload videos. "It may be just a passing fad," says analyst Bryan Ma of researcher IDC (IDC).

Shen and the rest of Asustek's top brass understand these concerns. The company has just unveiled a souped-up version of the Eee PC, with a wider screen and additional bells and whistles. And faced with the growing competition, the Taiwanese plan to use artful design and technological innovation to stay ahead. Says Shen: "We can lead in the market."

Original here