Taiwanese electronics manufacturers are reporting record-breaking revenue on production of Microsoft's Xbox 360 games console.
Wistron Corporation, one of the core manufacturers for the Xbox 360, has reported that its October revenue hit a record high of $536m.
"Wistron is the biggest OEM manufacturer for Microsoft's Xbox 360," according to investment analyst Masterlink Securities, which is predicting continued strong sales for the company on Xbox 360 orders and notebook PC production.
Microsoft will spend over $1bn manufacturing Xbox 360 units to be sold in 2005, and a similar amount in the first quarter of 2006 based on analyst estimates and data from Microsoft.
Much of this spending is going into the pockets of a crowd of Taiwanese manufacturers, both large and small. The simpler jobs will mostly be carried out in these companies' Chinese factories, with more advanced work, such as chip manufacture, being handled in Taiwan.
The benefits are far reaching for Taiwanese manufacturers. Passive component suppliers, such as Walsin Technology Corporation, have reported record high sales for several months, boosted by production of components like capacitors for the Xbox.
Sunon Group's share price jumped on news that it had won a contract to make millions of CPU fans for the console.
Cable manufacturer Ji Haw industrial, which makes the Xbox 360 power cable, has devoted one of its two factories in Eastern China to production of Xbox parts.
Nearby, another Taiwanese company, Foxlink, is manufacturing key components like the Xbox 360 controller pads and various connectors. Again the company has reported an increase in revenue.
Many Xbox 360 parts are the result of work by multiple suppliers. For example the graphics and memory controller (also known as the northbridge) is designed by ATI in Canada.
However all actual manufacturing is handled in Taiwan, starting with Phoenix Precision Technology, which is reported to be making the substrate, the basic material on which chips are built.
Taiwan Semiconductor Manufacturing Co then fabricates the chips. The company will turn out about 20,000 12-inch wafers, each packed with hundreds of chips, during the fourth quarter.
Finally, the wafers are trucked a short distance to Advanced Semiconductor Engineering Inc. ASE separates the chips, packages them in a form suitable for mounting on a printed circuit board, and tests them, before sending them on to Wistron or other contract manufacturers.
"Microsoft's Xbox 360 chip orders will propel ASE's growth momentum for second half 2005 and 2006," predicted Masterlink Securities.
Accessories are also proving to be a lucrative sideline. Modem and networking equipment maker Askey is expected to make over 100,000 wireless networking adapters for Microsoft's console by the end of 2005, according to local media reports.
These are optional units, sold for $99, which let the Xbox 360 work with wireless networks and wireless peripherals. Askey was recently bought by Taiwanese electronics manufacturing giant, Asustek.
The driving force behind the Taiwanese manufacturers' Xmas Xbox bonanza is production volume. Microsoft aims to sell three million consoles in the first three months following the 22 November launch, the company's Xbox chief financial officer, Bryan Lee, said at an investor conference earlier this month.
The company had earlier set a target of 4.5 to 5.5 million by June 2006. In fact, some analysts predict sales will be considerably higher.
Over four years, the original Xbox division lost $4bn in manufacturing, marketing and other costs, according to Forbes.
Microsoft has not said how much it is spending to build each Xbox 360, but analysts at Merrill Lynch have suggested an initial cost of manufacture in the region of $340 each for the consoles, which would imply a total manufacturing spend of over $1bn per quarter.
Production cost will fall to less than half that figure over the next three years, Merrill Lynch predicted, giving Microsoft a chance to make a profit later in the console's life cycle.
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