iPad popularity sends laptop component makers to cloud

The world's two biggest laptop assemblers are seeking shelter in the cloud as Apple Inc's iPad threatens the future of personal computers. 

Quanta Computer Inc and Compal Electronics Inc, 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 and Dell Inc at Taoyuan, Taiwan-based Quanta fell last year for the first time since the company listed in 1999 as the US 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 and Amazon.com Inc 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) exited the market. 

"The golden era for notebooks is over," said Arthur Liao, an analyst at Fubon Financial Holding Co 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. 

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Sales at Quanta, the world's biggest laptop assembler, from cloud-computing products will climb 80 per cent this year as Google and Amazon boost orders, said Kirk Yang, an analyst with Barclays Plc. 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 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 per cent of revenue this year from 8.7 per cent last year, Yang said. Analysts estimate revenue growth will be 9 per cent this year after dropping 1.3 per cent last year, according to data compiled by Bloomberg. Quanta Chief Financial Officer and spokesman Elton Yang declined an interview request. 

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"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 per cent this year in Taipei and Compal's have added 8.6 per cent, compared with a 7.8 per cent advance in the benchmark Taiex index. 

With social networking sites such as Facebook Inc, 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 per cent last year to 353 million units, trailing the 7 per cent rise in sales volume for servers, according to researcher Gartner Inc. Significantly, server revenue gained even higher, at 7.9 per cent, Gartner said, indicating average prices increased during the year.