CEO Conversations XV: Maggi Chen, Founder and Chairwoman; Corona Chen, President, Chenbro (8210 TT)
The Tang Dynasty poet Jiadao (賈島) talks of a single sword that was polished for over 10 years resulting in edges that were super sharp. This phrase has become an idiom in Chinese that stands for diligent work on a single focused task over a long period of time, resulting in the development of peerless skill in that area. Having honed their competitive edge in the server chassis industry over a period of 38 years, Chenbro has benefitted from rapid secular growth in the cloud server industry, driven by global demand for more data centers. Its revenue hit a record high for 5 consecutive years in 2016-2020, reaching NT$7.5 billion (US$260 million) in 2020, and growing at a CAGR of 11% during that period. Chenbro’s end customers include many global first-tier Cloud Service Providers (CSPs), and it is now the industry leader with more than a 10% share of the global server market. When we walked into Chenbro's new headquarters in Xinzhuang, New Taipei City, Chenbro’s Founder and Chairwoman, Maggi Chen, walked towards us with an enthusiastic smile and said firmly, "This new headquarters marks a new starting line for our next 20 years. We are ready to grow!"
Chenbro was founded by Maggi Chen, her husband Lian-Chun Chen, and her younger brother Feng-Ming Chen. Since the first days of Chenbro’s establishment as a business, Maggi has led the company by adhering to the Chinese idiom that can be translated as "enduring hardship is a supplement to one’s stamina". Her prudent fiscal management of the company has allowed Chenbro to enjoy superior profitability than that of its peers, allowing it to stand apart as the rare server chassis maker to never post a loss over 38 years of operation and to have achieved an ROE of 15% or higher for ten consecutive years. Additionally, in June 2018, Maggi handed the role of President to Corona Chen, a professional manager, with an eye towards making a break from the traditional family-owned business model and towards the long-term sustainability of the business and its operations. Prior to that, Corona was the Vice President of Global Sales & Marketing at Chenbro and had previously worked at Intel for many years. These two female executives set Chenbro apart from others in the industry. "Maintaining a firm resolve in business matters and having a soft touch in interpersonal interactions are the biggest benefits of having female managers at the helm of a business." Maggi points out.
Focusing on Key Accounts and Riding the Wave of Growth in the Cloud Server Market
Today, over 60% of Chenbro’s revenue is generated from offering customized server chassis solutions to Hyperscale Data Centers. Its end customers include many Tier 1 CSPs in the United States and China, making it an important player in the cloud server supply chain and also a pure play investment on global growth in demand for data centers. Its strong position today is by no means fortuitous. Maggi says, "For many of our current large customers, we have spent more than 10 years to servicing them. For example, our largest customer in the United States was a small trading company when it first came to Chenbro, and now it has grown into one of the largest system integrators in the United States. This customer entered the supply chain of top-tier CSPs many years ago. Seeing their potential, we prioritized their business, and have been able to support their growth with our fast time-to-market and customization capabilities. As a result, we caught the wave of growth in the U.S. cloud server market early and have been riding it ever since."
Chenbro also gained a foothold in China with the spirit of grasping every single opportunity to transform small customers into large ones. Corona recalls, “When I joined Chenbro in 2013, I noticed that our top two customers had contributed over 70% of Chenbro’s revenue in 2012. Such an extreme customer concentration was a great risk to the company's long-term viability. Because of this, I chose to drive growth by focusing our sales efforts on increasing the number of our key accounts. We reviewed the list of our long-time customers and picked up those with the potential to grow into future key accounts that were capable of contributing annual revenue of over US$10 million each. Our current largest customer in China was the first one on our radar at that time, and we soon became a top supplier of server chassis for its core product lines for the first time in our history.”
Choosing well paid off for Chenbro, as this China customer has grown rapidly, becoming one of the top three server vendors globally, and helping Chenbro’s China revenues to grow as this customer has grown. And Chenbro now has expanded its number of key accounts to six, up from two in 2012. These key accounts combined now contribute approximately 70% of Chenbro’s revenue, with the majority coming from the cloud industry. Corona aims to further increase the number of key accounts to 8 by 2022. She says, "Our long-term strategic target is to maintain key accounts at 70% of revenue while continuing to expand the number of key accounts to diversify business risk. The remaining 30% of revenue will be generated from smaller customers. Among them, we can discover those who have potential to be our future key accounts and gradually grow our business with them. Only in this way can Chenbro achieve long-term sustainability.” In addition, Corona emphasizes, “Our goal is very clear. Among our key accounts, we must ensure that we establish a firm position as their first source supplier.”
Chenbro is Second to None in Terms of R&D Capability
The chassis industry is commonly perceived as an iron-casting industry with "No tech, Low tech". The reality, however, is that it has distinct barriers to entry. A server chassis must accommodate a range of different motherboards, cooling systems, power supplies and other components, as well as be well-suited for installation in a variety of different cabinets. Says Corona, “It takes years of experience to design and manufacture a server chassis that can prevent components from interfering with each other during operation while still achieving peak performance, has an optimal structure that prevents the chassis from sagging, and that can be used in differing external environments.”
She adds, “Some vendors in the U.S. and China have been pushing to standardize server system specifications for data centers in the past few years. Yet, in practice, no single CSP is willing to follow the hardware specifications of another competitor. Moreover, we found that when our customers want to differentiate their system from their peers, the chassis – similar to clothes for humans – is often the part that requires the most customization. Therefore, the trend we are seeing is more and more customization with low volume and high variety. These are exactly Chenbro's strengths."
Corona emphasizes, "Each of our peers has its own strength, but we are confident that Chenbro is second to none in terms of R&D capability. To accommodate the technological evolution of CPUs and other components, server chassis producers must continue to innovate in terms of structure, application materials, and manufacturing processes. Only those who can keep up with the pace of customer innovation can be winners.”
Take Intel's new-generation platform Whitley as an example, the motherboard shape is deeper than for previous generations, which leads to various changes in internal components, and it requires substantial changes in chassis design. Says Corona, “The most unique aspect of our tooling and design capabilities is that we have adopted the principle of modular design. The tooling that we have accumulated over the past 38 years are like LEGO bricks, which allows us to efficiently assemble custom products based on client need. This not only shortens our time to market, but also reduces customers' tooling costs. We are best known for our ability to jointly develop and design products with customers. We would not say there is no competition in this industry, but in terms of R&D capabilities, we want to be irreplaceable."
Keeping Up with the Strong Growth Momentum of the Cloud Server Industry Over the Next 5-10 Years
Chenbro’s strategy of diversifying its customer base has played well in the last two years amid the macro risks of the escalating US-China trade tensions and the Covid-19 pandemic. Focusing equally on both U.S. and Chinese customers has allowed Chenbro to achieve record high revenues while maintaining steady profits. Maggi says, "I am very confident about the outlook for Chenbro’s future growth and, of course, I am also very confident in Corona’s leadership. I believe the cloud industry will maintain its strong pace of growth despite the macro uncertainty.”
Corona adds, "I think the cloud market will show positive annual growth for at least the next 5-10 years, and I believe that the chassis industry is an attractive space to be in right now. We recently observed that both our U.S. and Chinese customers have been much more aggressive in requesting deliveries relative to the fourth quarter of 2020. Based on our current order visibility, we are optimistic regarding the outlook for our revenues over the next six months. "
Corona is full of confidence towards Chenbro’s future roadmap and says, "Our products are in lock step with the development of new generation CPUs. We have specialized chassis solutions for Intel Whitley and Eagle Stream, as well as AMD, Nvidia and ARM platforms. We are also accelerating our development of solutions for Chinese CPUs and working closely with Chinese customers. We ride on the shoulders of industry giants and continually develop new products. This is not only for large customers. We also have ongoing projects with second- and third-tier customers. We believe these developments can sustain our growth for more than 3 years to come."
Chenbro has two existing manufacturing facilities in China to serve customers globally. However, last year, Chenbro announced the largest investment in the company’s history in response to the rising tensions between the U.S. and China. It plans to invest NT$2.2 billion in a new facility in Chiayi County, Taiwan. Says Maggi, "Our U.S. customers have been requesting that we diversify our manufacturing bases and we have decided to set up a new facility in Chiayi. This new facility will be an automated smart factory, and our efforts in implementing lean management over the past three years were made in order to prepare for this. We must use machines to replace manpower given that there is a labor shortage in Taiwan.”
Maggi adds, “The first phase of the new facility will focus on accommodating demand from U.S. customers. Longer-term, we expect it will also serve for manufacturing a variety of product applications other than the chassis for data center servers, so long as they are chassis related. The existing two facilities in China will be used to fulfill the growing demand from Chinese customers. All in all, our investment plan demonstrates our confidence in the long-term growth of the cloud server industry, as well as our determination to grow for another 20 years."
If you would like to arrange a meeting with Chenbro’s Chairwoman Maggi Chen or President Corona Chen, please contact yvonnehuang@qtumic.com.
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