El Segundo (CA) – In a report released today, iSuppli delivered the stunning news that 82.6% of all mobile PCs produced worldwide – more than four out of five units produced anywhere – are outsourced by their vendors to original design manufacturers (ODMs). Some have names you’ve heard of, like Samsung, the #9 ODM with 1.5% of business. But the top six ODMs on iSuppli’s list, led by Quanta, are based in Taiwan, and they account for 71% of the world’s outsourced production.
What’s more, according to iSuppli estimates, a stunning 85% of all mobile PC manufacturing capacity is located not on the island of Taiwan, but in mainland China – specifically, in the greater Shanghai area. It’s standardization in notebook design which has made it possible for companies to outsource production – or, to be accurate, to let their outsourced production be outsourced – and which has contributed to the seemingly impossibly rapid rise of Shanghai from a farm town to a production powerhouse.
Basically, if you know exactly how to build a computer, then you can calculate exactly how low you need to pay someone to build a specific part of that computer; and nowhere is that calculation more accurate than the low-wage capital of the world, Shanghai. The cost savings on the ODM’s part is then passed onto the OEMs.
What happens to the savings then? They get reinvested, today’s iSuppli report implies, in what vendors do best: advertising and marketing. This way, says iSuppli, OEMs “can focus on their sales strategies, marketing activities and after-sales service to acquire and retain customers.” That reinvestment, the report ever-so-carefully implies, may contribute to the fact that gross margins in the mobile PC field remain in the 5 – 6% range, despite reduced costs.