The man behind the netbook craze

    A few years ago rivals mocked Jonney Shih, chairman of Asustek, and his purse-size laptop computers. Millions of netbooks later, Shih is having the last laugh.

    by Michael V. Copeland

    On a hillside above the Hsing Tian Kong temple in the northern reaches of Taipei, Jonney Shih sits on a wobbly stool next to an ornate low wooden table. Dressed in a taupe suit, white shirt, and silver tie emblazoned with jaguars, Shih, 57, cheerfully waves off three umbrella-wielding employees who try in vain to shield their boss from the hot sun and a swirl of menacing bees.

    But Shih, who is waiting to be photographed for this magazine, sits serenely, perspiration-free in the sun, intent on a game of Chinese chess. "In Buddhism you learn to accept everything, to let it flow through you," Shih says. "Then you can slow down and think clearly."

    It turns out the ferociously driven Shih is a less-than-model Buddhist. (Buddhists aren't supposed to be thinking about technology while they're meditating — something Shih is known to do.) But his ambition, combined with engineering skills and spot-on business instincts, also makes him the most brilliant technology executive you've never heard of.

    He is the largest shareholder and chairman of Asustek (pronounced a-soos-tech), the $21-billion-a-year tech conglomerate that introduced the first netbook three years ago, ushering in a revolution in the stagnant PC industry. When it hit stores in the fall of 2007, Shih's $399 EeePC was derided by rivals as a low-power plaything. But Asustek, or Asus for short, went on to sell millions of the mini-notebooks and soon vaulted to No. 5 in worldwide PC market share.

    Today virtually every PC manufacturer on the planet, including Dell (DELL), Hewlett- Packard (HPQ), and Toshiba, offers its own version of netbook. (The exception is Apple (AAPL).) But the biggest netbook maker, with 38% of the market, is another Taiwanese tech company, Acer, which also happens to be Shih's former employer. Asus, which had the market all to itself for about eight months, is now in second place, with a 30% share.

    So Shih, after creating what has grown into a $10 billion category in two years, needs to come up with another breakthrough, and he'll apply his own flavor of Buddhism to the challenge. "Most people think Buddhism is passive or about escape," he says. "It's not. It's about confronting what's in front of you with a clear and flexible mind. That might be a hot day or your competition, but you accept it and do everything the best at that moment."

    That sounds fairly magnanimous, but whether it's in Chinese chess or the PC world, Shih's best effort has a way of crushing the life out of whoever gets in the way. Shih's "not that well known in the West because he doesn't put himself first," says Jen-Hsun Huang, CEO of chipmaker Nvidia. "He's humble, but he always has a mental model for exactly what he wants his company to do."

    The Giant Lion

    Asus was started in 1989 by four former Acer engineers. (The name "Asus" comes from the mythical Greek horse, Pegasus.) At the time Acer, one of the original companies to transform the island of Taiwan into the center of computer manufacturing in the world, had already gone public on the Taipei exchange.

    Many Acer employees took their stock gains and launched their own businesses. At a café in Taipei, four subordinates tried to persuade Shih, who was running R&D at Acer at the time, to join them in starting a company to design and manufacture motherboards — the central circuit boards in PCs that connect crucial components, including the processor and memory.

    Shih demurred out of loyalty to his mentor Stan Shih (no relation), co-founder and chairman of Acer. But he did encourage his former reports to start Asus and took a stake in their new company. In 1994, after three years as president of Acer's business unit — selling Acer technology rather than designing it — Shih joined Asus as CEO.

    When a chip company comes out with a new processor, it's up to the motherboard designers to integrate that chip into a standard circuit board that can run the computer. Whichever company can get its motherboard out first and squeeze the highest performance out of a chip set wins the business of the PC makers.

    Back when Shih was at Acer, he made his reputation by building killer motherboards. When Intel (INTC) was rolling out its 386 processor in 1985, Shih and a group of engineers showed up at the Computer Electronics Show in Las Vegas ready to do battle. "We didn't sleep much that voyage," Shih recalls.

    In the competition among motherboards, Dell's offering was the highest performing, but it wasn't a technology suitable for mass production. Shih's was, and it beat out the best from IBM (IBM), Compaq, and everyone else. (At the time, many PC makers produced their own motherboards, which they sold to other manufacturers as well.) The orders came pouring in, and Shih's reputation around Intel and the rest of the PC industry was made.

    After moving to Asus, Shih continued his success with Intel's 486 processor, and computer makers such as Hewlett-Packard, Sony (SNE), and Dell found that if they used Asus motherboards, their computers performed better. By the mid-'90s, Asus sold more motherboards than anyone, and its revenue and profits climbed steadily throughout the decade.

    But in 2001 other companies, ECS and Foxconn, started undercutting Asus's prices in the motherboard business. Asus's share in unit volume fell to No. 2, and annual profit dropped dramatically to $300 million in 2002, from $500 million the prior year. In response Shih launched what he called the "giant lion" strategy.

    "You need to be a lion. A lion has position in the jungle," Shih says. "So we kept driving the performance, quality, and innovation of our motherboards — we kept our leading position in the jungle. But I realized that at the same time you have to have big market share. You need to be a giant lion." Shih founded a subsidiary, ASRock, to compete at the low end, leveraging Asus engineering and manufacturing.

    The giant lion mauled the competition: Within two years Asus was back as the No. 1 revenue producer in the motherboard business, and its volume exceeded the output of the second, third, and fourth companies combined.

    Meanwhile the company started making "white label" consumer electronics for the likes of Dell, HP, and Sony. Named Pegatron after the first part of "Pegasus" (the wholly owned subsidiary was spun out in 2008), it manufactured notebooks as well as routers, MP3 players, gaming consoles, and whatever else big brands wanted made. But Shih wasn't satisfied to be a mere contract manufacturer, and in 1997, Asus started making laptop computers under its own brand.