Netbook Sales Keep Quanta Competitive

One of the few bright spots in the tech industry over the past year is the market for netbooks, the small, inexpensive laptops that have become consumer favorites worldwide. Barry Lam, chairman of Quanta Computer, argues he deserves some of the credit. In 2005 he teamed up with Massachusetts Institute of Technology professor Nicholas Negroponte's One Laptop Per Child project to manufacture mini-laptops for the developing world. Later his Taiwanese company, which makes machines for Hewlett-Packard (HPQ) and other PC makers, persuaded Acer to take a chance on selling netbooks. "We said this is really, really nice and really sellable," says Lam.

Now Acer is closing in on Dell (DELL) as the world's second-largest PC maker, and Quanta is riding high as a go-to manufacturer for the hottest tech gear this side of Apple's (APPL) iPhone. Last year, Quanta's earnings rose 10%, to $616 million, on sales of $25 billion. The performance helped Quanta hit No. 7 on BusinessWeek's Info Tech 100, an annual ranking of the world's top-performing tech companies.

But competitors are swarming into the netbook market. Inventec and Wistron, smaller Taiwanese contract manufacturers, ranked No. 4 and No. 8 on this year's IT 100, in part because of their sales of the small laptops. So Lam is trying to reduce Quanta's reliance on netbooks and other laptops. "The real issue is diversification," says Steven Tseng, an analyst in Taipei with Royal Bank of Scotland (RBS). "The margins [for laptops] remain low, and [Lam is] looking for new areas to create value."

Thirty percent of Quanta's revenue comes from other products, up from 22% a year ago. Lam says the goal is to get that ratio to about 50-50. Quanta already makes the iPod Touch and the iMac for Apple. Investors are optimistic about the company's prospects: Quanta's Taipei-listed stock has risen 47% this year, compared with 45% for the benchmark Taiwan index.

AN EDGE IN RESEARCH

To stay ahead of companies from Inventec and Wistron to archrival Compal of Taipei, Lam is focusing more on research and development. That's an unusual emphasis in the tight-budget world of contract manufacturers. But Tracy Tsai, a senior research analyst with researcher Gartner, says the investments give Quanta an edge when pitching tech companies for business. "That's Quanta's major strength," she says.

The company is reaching out to top schools in the U.S. to come up with innovations. It formed a research partnership four years ago with MIT to cooperate on cutting-edge computer hardware. This year, Quanta formed a similar alliance with the University of California at Berkeley to focus on medical technology.

It's also working to take advantage of cloud computing, the increasingly popular approach in which people store information and applications in remote data centers instead of on their own PCs. Lam predicts the hard drives on most computers will become obsolete, and in three years Quanta will sell many laptops without them. "We had a vision 10 years ago that the PC would become mobile, and we won that revolution," he says. "The second revolution is now coming along."

An art collector who is on the board of Taiwan's top modern dance company, Lam says he's most interested in finding ways to make technology even more pervasive in people's lives. "I don't golf. I don't drink," he says. "In my heart, I'm always an engineer."

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