The world’s two biggest laptop assemblers are seeking shelter in the cloud as Apple Inc. (AAPL:US)’s iPad threatens the future of personal computers.
Quanta Computer Inc. (2382) and Compal Electronics Inc. (2324), the Taiwanese companies that together make half of all portable computers, are turning to servers and the tablets that access them. Revenue from building notebooks for clients such as Hewlett-Packard Co. (HPQ:US) and Dell Inc. (DELL:US) at Taoyuan, Taiwan-based Quanta fell last year for the first time since the company listed in 1999 as the U.S. PC market declined for the first time in a decade.
Sales of the iPad, cheaper and lighter than most laptops, have forced a slowdown in the $233 billion PC market, pushing the assemblers to chase orders from Google Inc. (GOOG:US) and Amazon.com Inc. (AMZN:US) for servers and tablets. The Taiwanese companies are taking a cue from their customers. Dell is cutting its reliance on PCs and HP considered spinning off the business, seven years after International Business Machines Corp. (IBM:US) exited the market.
“The golden era for notebooks is over,” said Arthur Liao, an analyst at Fubon Financial Holding Co. (2881) in Taipei, who rates Quanta an add and has no rating on Compal. “Quanta and Compal need to diversify into cloud computing devices like tablets and servers if they want to survive and grow.”
The success of iPads and other tablets has accelerated the growth of the cloud. Unlike PCs, tablets don’t store reams of data, but rather rely on frequent access to remote servers to run their applications, stream videos and music, and tap into all manner of other data.
Sales at Quanta, the world’s biggest laptop assembler, from cloud-computing products will climb 80 percent this year as Google and Amazon boost orders, said Kirk Yang, an analyst with Barclays Plc. (BARC) Compal last year more than doubled the proportion of its revenue from devices other than notebooks, said Jimmy Chen, an analyst with Masterlink Securities Corp. (2856) in Taipei.
Sales of cloud-computing products, including servers, tablets such as Amazon’s Kindle Fire and Internet routers, at Quanta will account for 13.4 percent of revenue this year from 8.7 percent last year, Yang said. Analysts estimate revenue growth will be 9 percent this year after dropping 1.3 percent last year, according to data compiled by Bloomberg. Quanta Chief Financial Officer and spokesman Elton Yang declined an interview request.
“Quanta and Compal recognized a while ago that notebook growth is slowing and they needed to look for new products,” said Chen, who rates both companies hold and estimates that combined they made about half the world’s laptops in the past decade. “Moving into cloud devices is new and risky territory for them, but it’s a move they need to make.”
Quanta’s shares have climbed 20 percent this year in Taipei and Compal’s have added 12 percent, compared with a 6 percent advance in the benchmark Taiex (TWSE) index.
With social-networking sites such as Facebook Inc. (FB:US), Google and Twitter Inc. gaining in popularity and more people using the Internet to buy and store music and data, demand for servers continues to climb.
That same can’t be said for PCs. Global computer shipments climbed 0.5 percent last year to 353 million units, trailing the 7 percent rise in sales volume for servers, according to researcher Gartner Inc. Significantly, server revenue gained even higher, at 7.9 percent, Gartner said, indicating average prices increased during the year.
Reign of PCs
Computer prices have declined annually since 2008, according to data compiled by Bloomberg. The average price on Dec. 31 was $660.07, compared with $786.90 on Dec. 31, 2008.
Tablet shipments will almost double to 119 million units this year, while computer shipments will climb 4.4 percent, according to Gartner. Sales of smartphones, which also can access cloud-based services, will climb 34 percent this year to 660 million units, according to IDC Corp.
In the past seven months, Google has announced more than $700 million of spending on Asian data centers, which are large warehouses that host its servers. That’s because increasingly more users in the region are accessing sites such as YouTube from handheld devices, Asia-Pacific President Daniel Alegre said in an April 3 interview.
Amazon, the largest Internet retailer, almost doubled capital spending last year to $1.9 billion, according to Bloomberg data. The Seattle-based company boosted technology and infrastructure expenses to support its Web services, Chief Financial Officer Tom Szkutak said Jan. 31.
“The reign of the personal computer as the sole corporate access device is coming to a close,” Stamford, Connecticut- based Gartner said March 12. “By 2014, the personal cloud will replace the personal computer at the center of users’ digital lives.”
Compal, based in Taipei and lagging only Quanta in laptop assembly, is the manufacturer of Acer Inc. (2353)’s Iconia tablet. Compal boosted revenue from non-notebook devices such as tablets, all-in-one PCs, televisions and smartphones, to 16 percent of sales last year from 7 percent the year before, Masterlink’s Chen estimates.
That figure may climb to about 20 percent this year, though the company’s decision not to manufacture servers makes Compal less diversified than Quanta and more at risk from the notebook- industry slowdown, Chen said.
Compal Chief Financial Officer Garry Lu, who also is the company’s spokesman, didn’t answer calls seeking comment.
Besides servers for Amazon, Quanta is manufacturing the online bookseller’s Kindle Fire. The device was the second-best selling tablet in the fourth quarter behind the iPad, according to DisplaySearch Inc.
Quanta also is the biggest assembler of Apple computers and laptops, making it an indirect beneficiary of the iPad, which has helped Apple lure consumers to its Mac devices from Microsoft Corp.’s Windows-based models, Liao said. Apple accounted for 24 percent of Quanta’s revenue in 2011, and that should climb to 34 percent this year, he estimated.
“Cloud computing is their future.” Barclay’s Yang said. “The challenge is that it’ll take a few years to get there.”
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