Taiwan electronics star sees future in diversity
By James Peng
TAIPEI (Reuter): One of the world's largest makers of computer motherboards, Taiwan's First International Computer Inc (FIC), is poised to expand into new markets and radically reorganize its corporate structure.
FIC has posted average annual sales and profit growth of over 60 percent in the past six years by focusing on desktop computers and motherboards, a key component in computers.
FIC's success has made it one of the handful of Taiwanese listed stocks in which foreigners hold a combined 10 percent stake, the maximum permitted by law.
Now the company is branching out into integrated circuit (IC) testing and notebook computer production -- changes that will accompany the firm's development into a diversified, decentralized conglomerate, FIC chairman Ming Chien says.
"My ideal for the firm is to build it as an international conglomerate, with diversified products made by a group of companies," Chien told Reuters.
He plans gradually to spin off FIC's major divisions into affiliated companies within five years. Each company would specialize in one area such as ICs, personal computers or motherboards. Another would handle sales and marketing.
"The firms will be well connected with each other but each will have independent and efficient management," said Chien, 46, an electrical engineering professor who founded the company with his wife in 1980.
Michael Hung, analyst at Jardine Fleming Investment Trust, said developing FIC into a conglomerate would allow it to react to market conditions more rapidly, while helping group members raise funds through separate listings on the stock market.
"FIC is in a position to challenge Acer Inc as Taiwan's top computer firm in the future," he said.
FIC is Taiwan's second largest computer-related firm with 1993 sales of T$11.8 billion (US$447 million), compared with personal computer maker Acer's sales of T$19.4 billion ($735 million).
Since last September FIC has been testing ICs on behalf of other firms, using a rented plant. It tests about 3.5 to four million memory chips a month.
Last month FIC began building its own IC testing plant, which cost T$1 billion ($38 million) and is expected to be completed in October.
The firm expects to test 10 million chips per month next year. This year its IC testing division should make profits of T$150 million ($5.7 million), and that was likely to double next year, Chien said.
"We also plan to step into IC packaging next year, which will cost us about T$1 billion to build a factory," he said.
Benjamin Chen of Baring Securities said that while Taiwanese companies were aggressively expanding and upgrading their IC production capacity, they had been slower to develop IC testing and packaging. Their tardiness should benefit FIC, he said.
Mass production of notebook computers, the other main focus of FIC's near-term expansion plans, will start this month.
Chien said FIC decided to make its own notebook computer, designed for ease of repair and maintenance, after finding that many existing models had high defect rates. Recent cuts in the price of liquid crystal displays were another reason.
FIC's pre-tax profit jumped 50 percent to T$450 million ($17 million) last year, with sales up 37 percent. Chien said the firm aimed for a 27 percent rise in sales to T$15 billion ($568 million) this year.
Securities analysts say FIC has some weaknesses, including its reliance on low-margin motherboards -- still expected to account for 40 percent of sales this year, down from 42.5 percent in 1993 -- and a high level of accounts receivable.
But most still expect double-digit profit growth to continue at least in the near term. Baring forecast FIC's 1994 net profit at T$573 million ($21.7 million), while Jardine Fleming predicted T$809 million ($30.6 million).
Hung said FIC's share price, which at its recent level of around T$65 is well off this year's high of T$87, had an upside potential of 40 percent in the next three to five months.
Beyond FIC's profit record and strategy, analysts say one strength is the fact that Chien's wife, FIC president Charlene Chien, is a daughter of Wang Yung-ching, head of Taiwan's biggest private industrial conglomerate, the Formosa Plastics group.
Except for buying materials such as printed circuit boards from the group, FIC has no direct business links with Formosa. But many analysts believe Formosa will help to shield FIC against risks during its expansion.
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