Second-tier motherboard maker DFI anticipates its industrial-use ACP (applied computing platform) motherboards will drive its overall shipments for 2005. DigiTimes recently interviewed the company’s chairman, YC Lu and his brother Lu Yen-chi, president of DFI, to talk about the company’s new focus on ACP motherboards and other high-end motherboard segments.

Second-tier motherboard maker DFI anticipates its industrial-use ACP (applied computing platform) motherboards will drive its overall shipments for 2005. DigiTimes recently interviewed the company’s chairman, YC Lu and his brother Lu Yen-chi, president of DFI, to talk about the company’s new focus on ACP motherboards and other high-end motherboard segments.

Q: In the first quarter of 2005, DFI posted pretax profits of NT$ 58 million, the best showing the company has had in the past 13 quarters. Since experiencing your first loss in the second quarter of 2003, how have you gone about improving the company’s gross margins?

A: ACP motherboards have been the key for improving the company’s gross margins. DFI has been producing ACP-motherboards since 1996 but the segment only accounted for 3-5% of DFI’s annual revenues at first. However, by the end of last year, the segment had grown to 45% of our revenues, up 35.4-percentage points from only 9.6% in 2002.

Admittedly, we only decided to intensify our focus on the high-profit ACP motherboards starting in the second half of 2002, as traditional motherboards were providing unsatisfactory results. Over the past three years, DFI has averaged an annual loss of about NT$ 50 million from our PC motherboard business.

Q:

Can you tell us more about DFI’s achievements in the ACP-motherboard business?

A:

DFI landed its first large order for ACP motherboards (from IBM) in 2001 and we began those shipments between May and June of 2002. The order was for 10.4-inch monitor-panel industrial boards. Then, DFI started receiving large orders from several foreign vendors for a number of special projects.

The ACP-motherboard segment contributed about 70% to DFI’s gross profits last year. In the first quarter of this year, our general-motherboard shipments were slightly lifted by our high-end gaming boards, so the contribution from the ACP segment dropped slightly to 66% of our gross profits and 43% of our revenues. We reckon that the contribution from the ACP-motherboard segment will remain flat throughout this year, as our K8-compatible LANParty motherboard series is likely to grow as well.

Q: Tell us about the company’s projection for ACP sales?

A: Revenues from the ACP-motherboard business jumped 95.7% on year in 2004, to US$ 27.4 (NT$ 859 million). In 2005, we anticipate sales will top US$ 38.5 million (NT$ 1.2 billion), representing growth of 40.5%. DFI has set a goal of US$ 80 million (NT$ 2.5 billion) by the end of 2007.

This year, we began handling system packaging services for our customers, such as for ARM-based industrial boards. As Taiwan is able to provide sufficient supply of cases and power connectors, the new business should have a good start.

Q: Regarding ACP-motherboard shipments, what do you anticipate for the future?

A: DFI has set our shipment goal to 700,000 ACP motherboards for 2007 and one million units by 2010. Currently, our top customer has ordered more than 250,000 ACP motherboards from us. For achieving the goal, we are attempting to maintain a defect rate of below 0.3% for our ACP shipments, which is a much lower rate than the 3.5% other industrial-PC makers obtain.

By 2015, we may begin seeking partners for a merger or acquisition, if our financial scale can afford it. However, it’s still too early to make any statement about this plan.

Q: How many people do you employee for your ACP-motherboard business?

A: The company is divided into three departments at present: manufacturing, ACP-motherboard and general-motherboard. There are about 280 people staffed in the manufacturing division, 23 employees in the ACP-motherboard division and 60 in the general-motherboard division. Fourteen R&D engineers are working for the ACP-motherboard business and 45 engineers for the general-motherboard section.

Q: Apart from ACP motherboards, could you provide any forecast for the company’s general-motherboard sales?

A: In the general-motherboard segment, we are moving towards high-end models, such as for the gaming segment. We have put a lot of effort into our LANParty models. The FOB price of the models is fixed at US$ 100-110, with gross margins of 14%. In the first quarter of this year, the high-end lineup contributed almost 30% of our total revenues and other general motherboards also occupied 30%.

DFI shipped about 16,000 LANParty models per month for the first quarter of this year, double what we shipped the previous quarter. We expect monthly shipments will top 30,000 units in the second half of this year.

Also, DFI began promoting models prices at US$ 75-99 in the gaming market from last month and the monthly shipments are expected to reach 20,000-30,000 units in the second half.

This interview was translated from a Chinese article.