Quanta may buy up to five component makers to cut costs

Quanta Computer Inc (廣達電腦), Taiwan's largest maker of notebook computers, said it's in talks to buy as many as five electronic parts makers in China, Taiwan and the US to lower costs and add products such as music players.

The firm has set aside NT$1 billion (US$30 million) for acquisitions this year and twice that amount for next year, chief financial officer Tim Li (李杜榮) said in a telephone interview last Friday.

He declined to name the firms involved in the negotiations.

Quanta is looking to cut costs and boost sales of non-computer products amid shrinking margins and increasing competition in the laptop business. Acquiring component makers may also help the company cut costs and gain expertise in new products such as consumer electronics used for entertainment.

"The market is pretty mature right now, so if we want synergies, mergers and acquisitions is probably the best strategy," Li said.

The company is undertaking "due diligence" of makers of components for notebook computers, MP3 players and entertainment products, he said, without elaborating.

"This is a move in the right direction for Quanta," said Kevin Chang, a Taipei-based analyst at Credit Suisse Asia International.

He said Quanta rivals Asustek Computer Inc (華碩電腦), Compal Electronics Inc (仁寶電腦) and Hon Hai Precision Industry Co (鴻海精密) have similar strategies to expand by acquiring component makers.

"The right partner can help to boost volume and add to their customer base," said Chang, who rates Quanta stock "neutral" with a target price of NT$52.

The company aims to increase the proportion of revenue from non-notebook products to 30 percent by 2008 from 19 percent now, Quanta CEO Michael Wang (王震華) said in a conference call with analysts and reporters last Wednesday.

The firm may buy the target companies, take stakes in them or form alliances using stock or cash, Li said in the interview last Friday.

Last Wednesday, Quanta reported that second-quarter profit climbed to NT$2.11 billion. Gross margin slid to 5.4 percent from 6 percent a year earlier.

Li's planned acquisitions would follow the company's exit from the liquid-crystal-display (LCD) business, where falling prices prevented profitability and a failed attempt to form a joint venture with Japan's Sanyo Electric Co to make flat-panel TV.

The company on April 7 said it was selling its unprofitable liquid-crystal display business, Quanta Display Inc (廣輝電子), to AU Optronics Corp (友達光電) on Oct. 1 for NT$71.7 billion in stock.

Quanta on Aug. 11 delayed by one year a venture to make flat-screen TV with Sanyo, and instead bought a 19 percent stake in Sanyo's TV-making business called Sanyo Visual Technology Inc.

Li said forming a venture with Sanyo was delayed because the number of subsidiaries involved was more than expected, making the legal arrangements more complex.

"We don't want to hurry to acquire just to acquire," Li said. "We don't want to regret it after the marriage."

source: Taipei Times