Steve Liang’s profile
Current position: President of Ablecom Technology
Hobby: Table tennis, badminton
Founded: 1997Capital: NT$630 million
Product lines: Server chassis (90%); server slideway and rack (10%)Revenues over the years:
2009 - NT$2.83 billion
2010 - NT$3.54 billion
2011 - NT$3.9 billion
2012 - NT$4.5 billion (estimated)
Ablecom Technology, established 14 years ago, saw revenues reach almost NT$4 billion in 2011. Ablecom's biggest competitiveness is that the number of its chassis models has already reached more than 200, the highest in the entire industry. The company is also quick in delivering products, with its lead time now having been reduced to 14 days from the original 26. If a client who has already placed orders with us previously asks for specific modifications to the models, we can deliver the products in only seven days. Very few makers can deliver products that fast.
Ablecom’s chassis prices are also lower than those of other players in the industry. Let me tell a story. When Ablecom was first established, I was only helping my elder brother Charles Liang do purchasing in Taiwan for the server company Supermicro that he set up in the US. I remember that there was a time when I was looking to purchase a large server chassis from an outside vendor. When the vendor offered a quote of NT$12,000 for each set, I reasoned with the vendor by pointing out the cost of the product: “This should not be that expensive! This is at most NT$3,000.” We almost fell out with other each, with the vendor stressing that I did not understand how difficult it was to make the chassis. He challenged that I could never produce a chassis like that.
I accepted the challenge. I invested NT$20 million initially to develop the mold and after eight months, I succeeded in making that chassis. Each of them cost NT$3,000 and its features were even better than those of that vendor’s. Three people could stand on it without breaking it. That year, Ablecom’s revenues reached NT$120 million, double the amount of the previous year, and the revenues for next year doubled again. Maybe I should thank the vendor for the challenge.
A large number of models, short lead time and low cost
The expertise of our largest client Supermicro is its fast launch of new products with extraordinary specifications. For example, its servers feature ultra-thin rail tracks and high density. However, as Taiwan makers’ quotes for this kind of rail track are expensive, Ablecom thinks it had better produce them itself. We use the roll forming method instead of precision stamping to reduce the related cost to only around half of those of other vendors, while the features are almost the same with a thickness of only 5.7cm. Ablecom’s principle is to do things that others cannot do. Otherwise, what’s the point of doing the work ourselves if we could simply look for a supplier, bargain down the prices and outsource it?
The large number of models, short lead time, and low cost have allowed us to ride the wave of white-box servers in China. In the past, China’s server market was dominated by global first-tier vendors such as IBM, HP and Dell, but they only offered few model choices or standardized models, and were unwilling to customize their systems for clients. But with the China’s server market having grown to a certain level and vendors having improved their technologies, they are now able to asses their strengths and weaknesses. Since white-box servers are 10-20% cheaper than servers from the first-tier vendors, and can be customized to meet clients’ needs, white-box servers are very popular.
Most of us are pessimistic about the economy, but I’m not because I’m convinced that the market will not disappear. Therefore the more conservative everybody else is turning, the more aggressive I will become.
During the economic downturn, some companies’ will adopt conservative strategies to prevent inventory piling up, fearing that the inventory may hurt them. But when the economy slightly recovers, clients will start placing rush orders. But those makers who have been afraid to prepare inventories and components can only reply their clients: "We can only deliver the products to you after two months." Under such circumstances, we, with products readily available, will be able to win over these clients.
During the financial tsunami in 2008 when all sectors slumped, Ablecom tried this approach with success. Its revenues bucked the trend and grew. Therefore, the worse the economy is becoming, the more inventory we will prepare. Don’t treat the downturn as a “crisis,” but rather see it as a heaven-sent "opportunity." Ablecom has 7% of the global server chassis market and there is still room for a 93 percentage-point growth.
No monetary woes, no worries about inventory pile-up
Next, with the rising of the "big clouds" such as Google and Facebook, as well as continued improvements to Intel products, servers’ specifications will be getting more and more high-end. This will benefit Ablecom since the company’s advantage does not come from quantity, but rather it is a company with excellent R&D and diverse product lines catering to orders in small volumes. We have a R&D team of about 100 with annual increases in R&D budgets, which account for about 50% of all expenses and 5% of the total revenues. This year, Ablecom’s R&D budget will exceed NT$230 million. If the R&D efforts were cut from Ablecom, the company would only be an ordinary manufacturer without much value.
Another advantage that has been helping Ablecom survive the economic downturn is that the company does not have any monetary woes. We still have at least US$20 million in idle cash. We could obtain loans from banks, but we have not done so. Ablecom does not have any financial problems and therefore we are not afraid of preparing inventory. We might have been able to clear the inventory in six months in the past; now it might take one year, but that would not be a problem for us at all.
In the past, we put our main focus on supplying products to Supermicro with the server client accounting for 78% of Ablecom’s revenues. However, in order to make the company even healthier, we have started diversifying our supply chain partners and clients. This year, Ablecom will add many new clients from Taiwan and China. Although the initial volumes may not be significant, these orders are estimated to boost our revenues by 5%. With Supermicro estimated to enjoy a growth of around 15% this year, Ablecom will be able to maintain a 20% on-year growth in 2012.
Meanwhile, in addition to Ablecom’s plants in Dongguan, China, the company also started constructing manufacturing facilities in Bade in Taiwan’s northern county of Taoyuan at the end of 2011. The facilities will be mainly for producing high-end products. The first two phases of investment call for an investment of about NT$2.8 billion, and new capacity is set to be available in June this year with shipments reaching about 200,000 units. In three years’ time, the facilities in Taoyuan are expected to account for half of Ablecom’s total production. The reason that Ablecom has chosen to re-establish its production in Taiwan is that wages in China are soaring and the workforce there is very unstable – many workers will not return to work after holidays for family reunions. Although production cost in Taiwan is higher, it is more convenient to deliver products directly to the US, which will cut transportation cost. Furthermore, we can also adopt automated production to replace some manual work, such as using vibratory bowl feeders. We can use automated assembly as much as possible. In fact, after graduated from vocational high school, the first business I founded was for developing automation equipment. This is where I am really strong at and is also my personal interest. I hope to use automation to maintain as much as possible a balance between the costs of production in Taiwan and China.
We have plans to make Ablecom a listed company and the company’s financial structure is being shaped towards such a goal. However, whether or not we should be listed will depend on whether new clients can contribute 35% of the company’s revenues, or else, there will be no point of listing it. We estimate that the goal may possibility be achieved in three to four years.