Construction work on Chenbro’s new manufacturing facility in Chiayi County, Taiwan is in full swing, and the facility is expected to enter mass production in the fourth quarter of this year. Capacity will be ramped-up throughout 2022; and the new facility is scheduled to be capable of producing 80k to 100k servers per month by the end of 2022, which is the same scale as each of Chenbro’s two existing China-based manufacturing facilities in Kunshan and Dongguan. Over the past 38 years, Chenbro has come to be known for its measured and stable operations/growth strategy. While this substantial expansion in production capacity may seem aggressive, we see it as yet another indication of how in tune management is with the current strong secular growth trend in today’s global server industry.
Driven by rapid secular growth in the cloud server industry, Chenbro’s revenue reached a record high for 5 straight years in 2016 to 2020. That record of uninterrupted growth has remained intact this year, as the company delivered 16% YoY growth in cumulative revenues in January through July. Corona Chen, the President of Chenbro, says, “At the beginning of the year, I expressed that I was optimistic about the revenue outlook for the next six months, and the actual financial results were consistent with our internal targets. We aim to achieve revenue of NT$10 billion next year, and I am excited about Chenbro’s mid- to long-term growth prospects.”
Says Corona, “Growth Impetus from the Cloud Will Continue, while Tomorrow’s Growth Will Increasingly Be Driven by Edge Computing and Artificial Intelligence”
Corona says, “Over the past few years, Chenbro’s competitive standing in the server industry has been quite clear. In the cloud server market, Chenbro is the top chassis manufacturer. Demand from the cloud industry will show healthy growth over the next 5-10 years, and will continue to be a strong fundamental driver for our revenue growth. However, we cannot be complacent with the status quo. We expect the Edge Computing and Artificial Intelligence (AI) server markets to be sizeable in the future, and we must seize this opportunity. We have been investing considerable resources into the development of Edge Computing and AI-related server products.”
Corona adds, “5G Edge Computing has a wide range of applications. Our customers serve diverse end markets that each requires a distinct set of specifications. Just in this year, we launched 2-3 Edge Computing chassis solutions and have received many Edge Computing-related inquiries from Tier 1 original design manufacturers (ODMs). More than 10 customers have tested our new products and some of them have begun trial production in small volumes. Initial order sizes will not be large, because the Edge Computing and AI server market has not yet taken off. We expect shipment volumes to become more substantial over the next 2-3 years; and I believe that Chenbro is on the right path. We will continue to emphasize the development of these new products in order to be able to seize the moment when these markets take off.”
Continue to Invest in R&D, Driving Sustainable Growth
Corona continues with emphasis, “To maintain our leading position in the cloud server industry, as well as to become a top player in the Edge Computing and AI server chassis market in the future, Chenbro cannot just be a pure manufacturer. Since I joined Chenbro nearly ten years ago, Chenbro has always placed a strong emphasis on research and development. The fact is that we have always had many competitors in the cloud server market, yet Chenbro has consistently maintained a much higher win rate for project bids than our competitors. This demonstrates that price is not the only consideration for our customers, and that the technical design capability of a given supplier is also a key consideration for clients.”
“This year I decided to set up an Innovation R&D Center directly under the President’s office. This is different than our existing R&D team and will focus on next generation chassis design rather than the evolutionary design changes required for existing product lines. The development timeline for the Innovation R&D Center will be for products that we’ll produce 3-5 years in the future. The structure, thermal solutions, and materials required for future chassis designs will be closely related to the technology development trends for the Cloud, 5G and AI. Some of the key areas of focus will be Rack Scale Architecture for hyperscale data centers, short depth chassis for Edge Computing, CPU thermal modules, and load-bearing structures. In order for Chenbro to continue to grow, we must have a deeper understanding of and become even more specialized in the science of enclosure design. To further enhance our chassis manufacturing and design capabilities, we aim to push the innovation envelope, developing increasingly advanced technological capabilities. I hope that this Innovation R&D center will be the engine of growth for Chenbro for many years to come.”
Corona continues, “After I joined Chenbro, I integrated the concept of ‘CPU platforms’ into Chenbro’s product designs. For cloud server enclosures and Chenbro’s off-the-shelf (OTS) products, we need to ensure that our designs follow the roadmap of each vendor’s CPU platform. Although we are a chassis manufacturer, we must understand the platform evolution of these server industry giants, including Intel, AMD, ARM, Nvidia, and the Chinese CPU producers. We work closely with them, and our chassis solutions for each generation can accommodate customer needs for different CPU platforms, allowing us to make seamless transitions for each server generation. For example, we are ready to launch new products for the Eagle Stream and Genoa platforms next year. This helps to ensure that we won’t see any interruption in our ability to do business, and that our revenue stream will be consistent and sustainable.”
OTS Product Offering as a Key Differentiating Factor, Creating a Win-Win Ecosystem
We ask Corona why Chenbro is able to stand out amongst its peers, and she answers, “While other chassis manufacturers can only provide joint design manufacturing (JDM) and/or pure original equipment manufacturing (OEM) services, Chenbro also has a unique off-the-shelf (OTS) business model. Over the course of 38 years in this business, our OTS chassis have become our strongest point of differentiation versus our peers and have served nearly two hundred customers. As customer server requirements are trending towards greater variety in specifications with lower-volume orders, Chenbro’s OTS products are designed and manufactured with modular concepts. This increases clients’ flexibility when choosing features, while providing them savings on tooling costs. At the same time, it shortens our time-to-market when introducing new and enhanced products, creating a win-win situation for Chenbro and its customers. We will continue to give full play to this advantage to sharpen our competitive edge. Our long-term goal is to increase OTS revenue to 40% of total sales.”
Corona further adds, “For different vertical market applications, such as surveillance, medical, and data centers, we outline Chenbro’s 1U to 4U product roadmaps based on market needs, integrating modular design concepts into product development and manufacturing. Customers can directly adopt our OTS products or request customized spec adjustments. It is impossible for other pure iron-casting chassis manufacturers to have such product offerings, and it is a powerful marketing tool for us. In fact, many of our customers adopted OTS solutions while they were still relatively small in scale. As their businesses grew, the relationship gradually shifted to a long-term ODM/JDM collaboration with Chenbro, and several of these customers have become Chenbro’s key accounts.”
Chenbro’s development of its OTS products is also a good illustration of the spirit of “mutual benefit and win-win” that Maggi Chen, the Founder and Chairwoman of Chenbro, has always advocated. Corona points out, “When designing a chassis, in addition to the chassis itself, we need to take into consideration the other components that will be added to the chassis, such as motherboards, fans, power cords, and power supplies. Therefore, we must build up strong R&D capabilities and engage with the suppliers of different components early in the product development process. We are not a systems integrator, but we do have the ability to provide testing and verification for rack-level solutions. Moreover, we often introduce components suppliers to clients when we feel they are a good fit for our customers’ specific needs.”
Building the New Chiayi Facility as a “Low-cost Smart Factory”
Chenbro’s new Chiayi facility, which is projected to commence mass production in the fourth quarter, is being built with more than just the rising trade tensions between the U.S. and China in mind. It is also expected to improve Chenbro’s mid- to long-term profitability with its unique “low-cost smart manufacturing” design. Corona explains, “Without the implementation of smart manufacturing, the manufacturing cost of a Taiwan-based factory would be higher than that of a China-based factory, as there is a serious labor shortage in Taiwan. As a result, automation is the only way to go. When building the new facility in Chiayi, we incorporated the concepts of lean management and smart factories using many thoughtful and innovative methods. Importantly, we did not build our factory using a high-cost ‘all the bells and whistles’ automation strategy. Rather, we set the achievement of ‘low-cost smart manufacturing’ as our goal.”
Corona adds, “We first optimize the production process with lean management, and then introduce automation to the production lines. The Chiayi facility will start with partial automation this year and begin the first phase of mass production in the fourth quarter. Next year, the facility will be fully ‘low-cost automated,’ which will reduce labor costs, improve operational efficiency, and strengthen inventory management. Based on our internal study, a robotic arm can reduce manufacturing costs by roughly 75% versus manpower, leading us to believe that this is the right thing to do considering future investment returns and long-term cost competitiveness. In fact, without automation, we may not be competitive enough to receive orders from certain major customers in the future. Currently, not only our existing customers have high expectations for this new facility, but even some large customers whom we served in the past have re-connected with us after seeing our plans of this new automated facility.”
Chenbro’s revenue has continued to set new record highs this year, but external factors including fluctuations in the foreign exchange rate, component shortages, rising raw material costs and increased shipping expenses have posed great challenges to Chenbro as well as the entire supply chain. Corona says, “We have undertaken several measures to counteract the effects of these external shocks, and we believe it will take a few quarters for the desired results to show. Near-term, we will strive to maintain our gross margin in the second half of this year at the same level as the first half. In the next one to two years, we expect our profit margins to gradually recover to previous levels given the expected effect of our internal adjustments, gradual ‘normalization’ within the supply chain and, most importantly, as we see an overall improvement in our operating efficiency from the ramp up in production at our ‘low-cost automated’ Chiayi facility.” Wrapping up the interview, Corona emphasizes, “Chenbro is a high-growth company. Revenue growth and market share gain are still our top priority. We firmly believe that the new capacity from the Chiayi facility will lead Chenbro into its next stage of rapid growth. We are confidently marching towards our goal of NT$ 10 billion in revenue next year.”
If you would like to arrange a meeting with Chenbro’s President Corona Chen, please contact yvonnehuang@qtumic.com.
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