Asustek Computer has long been the leader in the motherboard business since its establishment in 1990. In 1997, the Taiwan-based vendor ventured into the notebook market, and since then has also established itself as a major PC brand worldwide. But in recent years, it has hit a bottleneck, and its profitability has been waning since 2015.

It has made management changes over the past few years trying to rejuvenate its business, but its problems remain. The cryptomining fever gave it a brief period of relief starting second-quarter 2017 with increased incomes. But as the cryptomining fever subsided in 2018 with its handset business remaining in the doldrums, Asustek ended up reporting disappointing results for the first three quarters of 2018.

Speculation about a major management shakeup at Asustek had been rife over the past few months, and the company has now announced that its president and CEO Jerry Shen is set to resign at the end of the year, with SY Hsu and Samson Hu to become co-CEOs. The management reshuffle will come with some other major changes in the company's business operations, including a revamped direction of its handset business to focus on the gaming segment, and a venture into the AIoT sector.

Digitimes had the opportunity to talk to Asustek chairman Jonney Shih and Jerry Shen about the changes and challenges, as well as the company's business outlook.

Q: When did you decide to make the organizational changes?

Shih: Asustek has seen fast growth and excellent results in the past, having become one the most important brand vendors of Taiwan. It has also seen lows and challenges. In 2019 Asustek will mark its 30th anniversary, a time when the company faces even faster changes and more challenges. Over the past two years our operations have been at their lows. Our services and products may not have been good enough, and I have to apologize to our customers and shareholders.

Asustek had an excellent company culture in the past, but as the company expanded gradually, the weaknesses of such a culture began to show: the friendly tendency to "avoid conflicts" hampered expressions through collective intelligence and stalled the evolution of the company.

Despite the predicament, Asustek has not lost our confidence. A few months ago we started mulling our new directions. We determined to face the challenges and return to our core values. The core value of the Asus brand comes from its products, their quality and user experience. We need to revise our culture to give priority to collective intelligence and creativity.

The board of directors had peaceful and rational discussions of the matter; there wasn't the kind of boardroom coup that people outside the company had imagined. I thank all top executives for their devotion, allowing the restructuring to go ahead towards achieving the common goal, that is, to bail the company out of the lows towards sustained business growth.

There is another important principle for managing a company, that is, it needs to take care of the both the short-term and long-term developments. Asustek at present has to deal with the keen competition in the PC market segment, and at the same time needs to build up momentum for new businesses. They are both important and pressing matters. We've decided that the best approach is to introduce collective management to facilitate collective intelligence. Therefore our CEO Jerry Shen decided to pass the baton onto SY Hsu and Samsong Hu, and let them nurture more young and capable managers for the company. And in line with the spirit of entrepreneurship that Asustek embraced some three decades ago, Jerry will build a new AIoT business.

Q: You have been CEO of the company for more than 10 years. What made you decide to leave the post?

Shen: In 2018, Asustek has again seen volatile businesses and keen competition in the market. We see the pressing need to explore new business opportunities and restore our business momentum. In order to achieve both goals, Mr. Shih and I together made two decisions. First, passing the baton from generation to generation is necessary for a company's sustained growth. In order to implement collective intelligence and to pass the baton, I'm passing the CEO responsibility to SY Hsu and Samson Hu, giving the next-generation management enough space and time to amass experience and strengthen the health of the company. Second, the new businesses need to be developed quickly and supported by devotion, as they face unknown risks. I'm willing to face the challenges and risks, and I'm also keen on building new businesses. Therefore I've chosen to devote myself to the new business. I hope my ambition can galvanize the Asustek team and also help the company fast-track to AIoT sector.

Q: Why are you introducing the co-CEO management model? Why SY Hsu and Samson Hu?

Shih: The global industry faces a tougher environment than before. Jerry Shen has devoted himself to Asustek for more than 20 years. We all appreciate his work as CEO. 

Hsu and Hu started out in motherboard R&D, and have since worked at the PC and tablet businesses. They have both years of experience working in the company. Besides, they both have the quality that enables their work as CEOs. Apart from their tech know-how and management capability, they are very strong at handling pressure and crises. Even Jerry Shen vouchsafes they can be as good as himself.

They also have a strong understanding of each other, and at the same time they are independent and active. They can be expected to unleash creativity and make careful and good decisions, leveraging the synergy of collective intelligence. I'm confident that Asustek, under their leadership, can improve gradually, achieving its goals and nurturing the next-generation talent.

Actually, I think "CEO" has two other meanings: "chief experience officer" who make sure the product experience is optimal; and "chief engineering officer." Asustek's spirit will only be manifested when the two combine. At least, Asustek's motherboard business was originally like that.

Q: The restructuring has a completely new plan for AIoT. What's behind the plan?

Shih: To achieve sustained growth it needs both short-term and long-term planning. Apart from restructuring the existing major businesses, Asustek has decided to expand its AIoT business. AIoT technology and applications are expected to bring disruptive innovations and opportunities to the global industry.

Asustek's plan is to make strategic efforts in AIoT, forming an AIoT operation committee whose members at present include company vice chairman Ted Hsu, who's well-versed in AI and cloud computing, me and Jerry Shen, as well as the two co-CEOs and several vice presidents. They will leverage their expertise and experience to explore opportunities in the commercial and B2B areas, in line with the advancements in IPCs, building AI-enabled smart mobile devices for various industrial and commercial applications.

The company plans to spend up to NT$10 billion on strategic investments and M&As to quickly build up a team that can turn the company into a leader in the AIoT sector in three years. We've already decided to invest in the new company that Jerry Shen will found.

For Asustek, AIoT almost represents the future, as it is understandable why AI is so important. AI can be used to describe future megatrends, but faced with the vast future, there's no use simply talking. Asustek has therefore decided to take actions. For the AIoT business, we are looking to team up with other Taiwan companies to strengthen our international competitiveness. Jerry Shen's new company will play a leading role, paving the way with speed and flexibility.

Q: What are your goals for the AIoT business?

Shen: I'll be the chairman and CEO of the new company, in which Asustek will take a 30% stake. The rest of the investments will come from the management team and strategic partners. Initially it will be a company of about 100 people, and we expect it to see stable operations in 2019.

Entrepreneurship may come with risks, but that's what I like about it. I see my supply chain partners as my resources.

Currently, Asustek still holds an about 14% stake in Advantech, and 43% in Aaeon Technology. My new company will remain open to cooperation with these two IPC firms. The industry is very big, and my company will focus on providing services and solutions, and work closely with the Asustek Group, enabling comprehensive products for clients.

Q: After the co-CEOs take office, will there be changes to their original work?

Shih: PC products will still be very important. The co-CEOs will still be responsible for their original areas, but they will have to handle more overall management work. Generally, companies don't usually adopt co-CEO management, but their understanding of each other makes them perfect for the new management model.

Q: The handset business is set to be reorganized. What are Asustek's goals for the business?

Shih: I appreciate the handset team's years of hard work, which has established a firm place in the market for its ZenFone as an high-end yet affordable series. But faced with fierce competition in the market, Asustek has decided it is time to change. But we need to identify our "holes" before we can make breakthroughs. Asustek will now narrow our focus and give priority to creating value. It will focus on catering to gamers and power users, launching high-performance, well-designed and high-quality products for target market segments. Power users are a market segment with high growth potential, and it is also a segment that Asustek has known very well since it started its motherboard business.

Asustek will also make some adjustments to its personnel in the handset department including laying off or relocating 600-800 of its employees from its worldwide handset operations. About 300-400 workers in Taiwan and 400-500 at overseas offices will be affected.

Q: What about the notebook business?

Shih: Asustek sees fierce competition in the gaming market. At present the gaming business is still run by Rangoon Yang, who is good at identifying the crucial factors. We are confident that we will extend our lead against competitors.

Asustek has been relatively weak in the enterprise notebook segment, and we still have a dedicated team for its development. As I have said, we need to identify our "holes" before we can make breakthroughs. So far, our enterprise notebooks, including Chromebooks, have achieved rather significant results.  

Q: What's the biggest challenge lying ahead in 2019? How long will it take for the revised organization to get on track?

Shih: The restructuring is meant to restore our company spirit. We hope we can change as much as possible in 2019. But when it comes to things that are fundamental, I will give it more time. We will also have to consider possible indirect outcomes from the changes. This is also very important.

I don't want our team to blame the outside environment for their difficulties they face. We must do our best, and make sure we have done all that we can do.

For me, as long as it is good for the company, passing the baton will not be an issue. No one is being "excluded."