Digitimes reports that Abit is thinking of getting out of the motherboard business, and MSI is thinking of getting rid of its low profit OEM lines.

Apparently Abit shipped less than half of its goal of motherboards so far this year, and it is waiting to see what happens with its P45 based boards before deciding to get out of the market.

MSI apparently wants to get out of the OEM business due to lower profits than it wants on OEM products, and only keep the premium branded motherboards.

Geez, MBA thinking or what?

<climbing on soap box>

In theory, its fine and dandy - even logical - to get rid of product lines that don't return enough profit. The problem is deciding what enough profit is.

I've personally seen companies go under when the management becomes convinced that they should only concentrate on high profit products and services, due to their higher return, and get out of the lower profit "bread and butter" products and services. Sounds great in theory - lowers costs, increases profits.

Unfortunately for freshly hatched MBA's, and business people who don't think enough, this only works for a while - because they are missing a HUGE detail:

There is a LOT MORE lower profit business than higher profit; they have to use the Henry Ford model - sell LOTS at low margin and actually make more money than selling a few at a high margin.

Let's take a quick look at motherboards.

Of course Abit, MSI, Asus etc will have a higher profit margin on a $250 "top of the line with bells, whistles and cow's" motherboard than on a $100 workhorse or a $50 cheapie special.

Let's say they make $150 profit on the high end (remember, distributors, dealers etc want their cut, and it does cost money to make)

Let's say they make $30 profit on the medium board, and only $2 on the cheapie.

Okay, some guesses

Let's say they sell 100,000 high end boards - that $15M profit.

Let's say they sell 1,000,000 medium boards - that $30M profit.

Let's say they sell 5,000,000 cheapie boards - that $10M profit.

Guess what?

If they only sold the high end board, they would only make $15M profit instead of $55M by having a diversified portfolio!

Sure, my analysis is too simple, and it costs more to make three types of boards, but the greater profit allows more R&D to make the high end boards, and often the medium boards are somewhat cut down versions of the high end boards - with less fancy heatsinks etc., so they do save a lot on development.

And they are forgetting that people will buy a LOT more mid/low range boards than high end... I doubt ANY company could survive on just high end boards.

<end of rant>