Asustek Computer, also known as Asus, has recently posted its lowest quarterly profit in a year, as it implements a management restructure and battles succession issues and a poor relationship with a critical Chinese final assembly company.
The company announced US$410 million (NT$12.3 billion) in net profits for the second quarter of this year, the lowest figure posted since a company restructure one year ago aimed at combating nine years of sluggish growth.
In mid-2017, it restructured a business division, known as its systems business group, which develops devices running on operational systems, including computers and mobile phones.
The group was divided into three individual units to separately manage the company’s personal computer business, mobile computing devices and gaming computers business. Asus executives hoped the change would sharpen the company’s focus on each of these businesses and improve efficiency.
The latest financial results show the restructure has not harvested any results. They also indicated three challenges Asus needs to overcome.
Delayed supply chain
Development of Asus’s last two flagship smartphones was delayed when a supply chain was switched from Taiwan to China, causing them to be released in the second half of the year, facing competition from new iPhones from Apple and Samsung’s Galaxy Note series.
Later on, its latest flagship smartphone and related series, the ZenFone 5, 5Z and Max Pro, were launched at a good sales time in April this year. They performed well in India, Indonesia and Taiwan.
The company relocated final assembly in its supply chain to China in order to lower manufacturing costs and thus the price of its smartphones to compete against lower-cost brands, including China’s Xiaomi. But the Chinese company could not produce devices fast enough and Asus could not respond to consumers’ orders worldwide.
To solve this problem, Asus has hired Jerry Tsao, a former Intel sales and marketing regional head, as chief operating officer this January. The new executive plans to set up a 200-strong team to improve supply chains in China and hopes to solve this issue by the fourth quarter of this year.
Unstable executive team
The management at Asus is going through a rocky patch as the company struggles with succession issues. Asus Chairman Jonney Shih, 66, has postponed a planned resignation for a year.
Asus for years had only been focused on traditional hardware design and development. Now that AI is seen as the main future technology in the industry, ASUS is under pressure to integrate AI into its products and services to keep up to date.
New technologies require fresh talent. Shin has recently brought several relatively young employees into his executive team and gradually established a new decentralized corporate structure, but it is still too early to see if this will bring results.
In other restructures, Asus added a new business unit known as “business computer” into its systems business group this April, in the hope to sharpen its business focus.
The company meanwhile is still looking for a chief marketing officer to handle its global communications.
Shih also promised the restructure was for responding to market changes and there would be no lay-offs.
Networking device subsidiary experiences continuous losses
One of the biggest drags on profits was Askey, an Asus subsidiary selling electronic and network communications products. Its financial losses reached US$20.4 million (NT$612 million) this quarter.
Founded in 1989, Askey has manufacturing sites in Taipei, Taiwan, and Suzhou, China as well as big clients like Verizon. It was once a profit-making venture in 2016, before seeing losses for six consecutive quarters totaling US$72 million(NT$2.16 billion)
Shih said operation adjustments at Askey were taking longer than expected, without giving details, and he promised a better financial performance by the fourth quarter this year at the earnings call.
Investors are waiting Asus to deliver better financial results in the second half of this year. The trade war between the U.S. and China, however, have caused currency depreciation around the world, which will impact on Asus’s total profits from its global retail channels.