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Quanta's Barry Lam:

Heading Not for Blue Ocean, but the Clouds


Heading Not for Blue Ocean, but the Clouds

Source:Kuo-Tai Liu

Quanta Computer chairman Barry Lam is embracing his "new 3Cs" with fierce determination. How does he intend to perform this "final movement"?

Heading Not for Blue Ocean, but the Clouds

By Elaine Huang
From CommonWealth Magazine (vol. 433 )

In Commonwealth Magazine's 2009 Most Admired Companies Survey, Quanta Computer was named the benchmark company in the computer sector for the first time, ousting perennial powerhouse Hon Hai Precision. Quanta chairman Barry Lam also made his inaugural appearance on the list of Taiwan's 10 most admired entrepreneurs, but Lam, who has been in low spirits for a while, was not thrilled by the good news.

"When will I become No. 1? I'll figure out a way to get there," said Lam, revealing the determination that has been aroused by his battles with cancer and competitors.

He has channeled his anger and frustration into repositioning his company. In the past, Quanta has been methodically low-key, guided by Lam's "Turtle Philosophy" emphasizing a stable, step-by-step approach to expansion. But this year, the turtle has been given a revved-up engine as Quanta accelerates its efforts to integrate vertically.

Having already invested in Zhan Yun (Shanghai) Electronics Co., a maker of plastic casings for notebook computers, Quanta announced on Oct. 12 that it had invested US$7.89 million in Kenseisha Shanghai PMP Co. and US$10 million to buy preferred shares of U.S. chip designer Tilera Corp.

Quanta's purchase of a stake in Japan-based Kenseisha's Shanghai plant will increase the proportion of its in-house production of metal PC chassis, while the investment in Tilera is to improve its capability to design cloud computing chips.

Lam, who fled with his family from Shanghai as an infant and was an impoverished graduate student at National Taiwan University, made Taiwan's first calculator and built Quanta into the world's largest contract manufacturer of notebooks. Now, he has a new ambition.

"I'm already 60. Quanta has been in business for 21 years. I want to compose a new symphonic movement, which will also be my finale," says a confident Lam, a great fan of Beethoven's Ode to Joy. "I want to build the world's biggest 3C enterprise."

This earth-shattering announcement signaled that Quanta, predominantly an ODM in the past, will remake itself into a complete solutions provider for customers' cloud computing needs by focusing on Lam's new "3Cs" – cloud computing, connectivity, and client devices.

 (In Taiwan, the term "3C" is conventionally used to refer to computers, communications and consumer electronics.)

"Quanta wants to find its own way – that is, moving from R&D to applications. In the future, notebooks will only be a vehicle to achieve the goal," says Simon Yang, vice president of the Topology Research Institute.  

In deciding on this score for his final movement, Lam is commanding and expanding Quanta's strengths.

The C.C. Leung Barrier

First, Quanta's strong foundation, built on sufficient cash reserves and solid technical services, forms a wall that its competitors are hard-pressed to climb. The man who erected this wall is Lam's former classmate and founding partner, Quanta vice chairman and president C.C. Leung, who, like Lam, grew up in Hong Kong.

Quanta's competitors have lamented in the past that the company has an invisible "C.C. Leung barrier."

"Customers can change their orders at any time, and Leung will effortlessly adjust his inventory and still deliver the goods on time. He has rewritten the industry's rules of the game," said a competitor, who believes Leung has helped Quanta build impregnable technical service and logistics capabilities that have allowed it to develop tight relationships with international branded vendors while minimizing inventory risk.

Lam has a clear line of demarcation for the roles the two play within the company. Operations with time frames of 18 months or less are supervised by Leung, while R&D projects of over 18 months are Lam's responsibility. Projects expected to extend beyond 36 months are handed over to the heart of the company's R&D program, the Quanta Research Institute, or to its partner in the United States, MIT.

Leung served as Quanta president from 1993 to 2006 and returned to the post in August 2007. Lin's wisdom in bringing Leung back has allowed Quanta to emerge from the global economic downturn relatively unscathed, compared to others in the computer and electronics sector.

In October 2007, when Lam and Leung flew to the United States to visit their many customers, the projections they were given by CEOs and senior executives were below expectations. They knew then that sales in 2008 would be weak, and as soon as Leung returned to Taiwan, he immediately ordered his salespeople to concentrate on collecting receivables as quickly as possible.

Quanta vice president T.J. Fang, who heads the company's Management Information Center, generated a number of spread sheets at the time to record how quickly customers were taking deliveries of goods. For every extra day their items remained in Quanta's warehouse, they were charged a handling fee, as Quanta doggedly sought to lower its inventory levels.

"At the time, the sales department hated us, saying, ‘How can we ask customers for such trivial amounts?' But at that critical moment, C.C. insisted on holding on to cash," Fang recalls.

At the beginning of 2008, Quanta's financial statements showed gross profits posting a 0.05 percent gain and cash on hand to be sufficient, setting the stage for Lam to make his recent acquisitions and smoothly integrate the company vertically.

Escaping the Red Sea for the Clouds

Leung also restructured the organization, reintegrating the company's product centers, which previously operated independently. That helped standardize product and component designs and simplify the types of parts stocked, giving each part greater economy of scale and thus reducing costs.

The high barrier against competitors erected by Leung has served as a strong and solid base for Quanta's transformation and allowed Lam to concentrate on R&D and innovation without worrying about day-to-day operations.

The strong foundation is particularly timely because Quanta is being attacked on all fronts this year. Growth in notebook contracting has hit a ceiling, and furthermore, assembly specialists Hon Hai Precision and Singapore-based Flextronics International have decided to enter the already cutthroat notebook market. Also, competitors Compal Electronics and Wistron Corporation are aggressively expanding their scopes, getting involved in LCD-TVs, netbooks and AIO (all in one) products.

A senior analyst at a foreign investment firm observes that Quanta's concentration in the past on building a successful ODM notebook business had come back to haunt the company, muddying the focus of its new business development.

"The greatest threat to Quanta's growth in the near future is the question of what comes after the notebook computer," the analyst says.

Standing on the wall to repel competitors, Lam fully understands the doubts that many outside observers hold.

 "I have never gone with the flow or repeated my steps. I won't pursue the blue ocean, because I know it ends up in a red sea. Instead, I'm heading for the clouds," says Lam, hinting that his competitors are repeating the same cutthroat bloodletting seen in the PC sector, but that he is taking the game to a higher level by promoting his "new 3C" business.

Lam, who has unfailingly promoted his vision of the "new 3Cs" this year, in fact began planning this new direction with the cooperation of MIT four years ago and recently signed a second five-year contract with MIT to develop cloud computing applications. Lam is also well versed in the efforts of China, South Korea and Japan to promote digital cities and their aggressive investment in cloud computing, and he even plans to brief Taiwan's president on the issue.

The Quanta chairman believes PCs will become cheaper over time and will become tools that provide computing services to humanity. "The value is absolutely in providing service solutions. That is how Quanta will now position itself," says Lam in clearly defining his goal.

An examination of Quanta's current technical capabilities reveals that Lam's 3C blueprint has not been drawn up in a vacuum.

Quanta's core business may be notebook contracting, but it is also capable of making cloud computing servers. Google's servers, for example, are made by Quanta. Add to that the company's subsidiaries in the communications sector – Quanta Network Systems Inc. and Quanta Microsystems – and its recent investment in Tilera, and Quanta has full system integration capabilities, from a cloud computing platform to end market coverage.

Questions remain, however, over what kinds of applications will work on the cloud computing platform and how the platform will be used.

Lam is currently engaged in answering those questions. In one example of a possible solution, if a branded vendor asks Quanta to develop a new product, Lam will try to move the entire supply chain and customer to a "public cloud," where problems can be directly solved.

Lam even believes that an individual who wants to establish a company in the future can save himself the trouble of going to a venture capitalist to raise funds for equipment, by cheaply leasing space on a cloud from Quanta, giving it access to talent and innovation from different places.

Lam's engineer personality gives him boundless enthusiasm for pursuing technological innovation. He sums up his philosophy with a quote from the late Japanese industrialist Konosuke Matsushita: "The road gets wider the longer you walk it."

"In applying the advantages of cloud computing, I want to continue to innovate and continue to lead in notebook computers," Lam says.

Outside observers may believe that future growth in the PC sector is limited. But perched on Quanta's forbidding wall, Lam is determined to fully realize his far-reaching "final movement."

Translated from the Chinese by Luke Sabatier

Chinese Version: 林百里:我不去藍海,我去雲端