Quanta Lays Off Workers Due to Poor RIM Blackberry Tablet Sales

The Taiwan-based Quanta Computer Inc. sent shudders through the PC industry in the third week of September, when the world's largest notebook PC contract manufacturer by shipment announced a layoff in its tablet PC factory in northern Taiwan, to which industry insiders attribute disappointing sales of Research In Motion (RIM)'s tablets.

Despite weak demand for PCs caused by still uncertain global economic outlook, global PC markets have been buoyed by supposedly sought-after tablet PCs this year. The trend has been backed by market researcher as International Data Corp. (IDC), which recently raised its global sales volume forecast to 62.5 million units for this year, for a 16% increase from 53.5 million units projected earlier.

Hot sales of Apple iPads is among the main reasons why IDC has raised its projection recently, with the market researcher believing the product to account for nearly 70% of estimated global tablet PC sales as mentioned above to drive the market this year.

IDC's optimism about iPads makes sense, as sales of the product reached 9.25 million units to command a 68.3% share of the global market in the second quarter, when 13.6 million units of various tablets were sold worldwide, with the second-quarter share even higher than 65.7% achieved in the first quarter.

The success of iPads has drawn RIM, Hewlett-Packard Co., Acer Inc., Samsung Electronics and Asustek Computer Inc. to the fray, which has proven too harsh for RIM, whose sales of the BlackBerry PlayBook tablet has lagged expectations.

iPad Challenger
RIM's BlackBerry PlayBook, a foremost challenger to iPad, debuted in mid-April in the U.S. and Canada, featuring an array of attractive hardware and software, including 7-inch LCD touch screen, 1 GHz dual-core processor, 1080p HD cameras for video conferencing and capture, 1Gb of RAM memory and up to 64 GB internal storage, GPS, stereo speakers and microphones, Wi-Fi, Bluetooth and more. Available with budget price and lightweight, the Blackberry was thought able to stand up to the iPad2.

The BlackBerry also became the only FIPS (Federal Information Processing Standard) certified tablet this year, paving the way for government tenders in the U.S., giving market observers another reason to believe that it may outsell other non-iPad tablet PCs backed by exclusive status.

Unfortunately reality is rarely as sweet as expectations in business. Sales of BlackBerry Playbooks have totaled only around 700,000 units worldwide since debut, far fewer than the company's original forecast of 400,000 units per month. RIM reports a steep drop of 200,000 units in sales in the second quarter from 500,000 a quarter ago, or only 5% of iPad's sales volume during the same period.

Disappointment
Quanta is case in point that gambling on even an exclusive order can backfire. The contract maker decided to set up a tablet plant, after securing RIM's exclusive order for BlackBerry Playbooks last year, dedicated to the product and once employed over 3000 workers. But poor sales of Blackberrys forced Quanta to lay off some 1,000 workers.

Quanta stresses that preferential terms were offered without forcible dismissals, so workers actually were laid off with better compensation than the severance packages under the local labor codes, but declined to confirm whether the layoff being was caused by worse-than-expected sales of Blackberry tablets.

Bet on Amazon
In addition to RIM, Quanta has also supplied tablet PCs to Sony, Lenovo and Amazon, whose order for the Kindle tablet will help drive Quanta's shipment this year.

Amazon's Kindle tablet is said to run on Android and use Fringe Field Switching (FFS)-based Triton color e-reader display on a multi-touch screen, with the Triton featuring low power consumption, higher-than-200dpi resolution, up-to-12-inch display support, and a 10:1 contrast ratio.

Besides, Amazon's Kindle tablet is also available at affordable prices due to simpler technical specifications, say insiders, which reflects the newcomer's ambition to quickly gain large consumer base in the competitive landscape with budget-priced hardware to steadily generate big profits with apps. Drawing on its experience in promoting Kindle e-book readers, Amazon is likely to be successful with the Kindle tablet in the short term.

No matter whether the Kindle tablet will threaten iPad's dominance, the product will certainly help drive Quanta's tablet PC shipment in the remaining months of this year. Since July, Quanta has been busy filing orders for Amazon, which reportedly demands 800,000 to one million units of Kindle tablets per month from August through October, with industry insiders indicating tablet PC shipments to Amazon alone will near 3 million units this year, generating an additional NT$24-30 billion in annual revenue.

Unfazed by RIM's sluggish tablet sales, Quanta's chairman Barry Lam says the company remains confident of remaining a major tablet PC supplier in the years to come.

Cloud Computing
With margins on notebook PC manufacturing steadily falling, Quanta will also put heavier emphasis on cloud computing to secure sustainable development.

With gross profits of 3.51% and operating margin of 1.4%, the company scored combined revenue of NT$525.998 billion and net profits of NT$11.074 billion for the first half, down 4% and up 6.2%, respectively, from a year ago to remain the most profitable PC maker in Taiwan.

The company also reported sales revenue of NT$93.06 billion for August, up 7.7% from NT$86.43 billion posted a year ago and 8.7% from NT$85.59 billion a month earlier, even though the consumer market for notebook PCs in Europe and the U.S. failed to rebound on the back-to-school season as significantly as expected.

Although some market observers believe the cloud computing business, largely in server production, is unlikely to boost growth for Quanta, which ventured into the segment in 2010, C.C. Liang, Quanta's vice chairman, says the contrary has been true so far this year.

Quanta has delivered cloud servers to customers worldwide, including heavyweights as Amazon, Facebook and Google, as well as partnering with Taiwan's top three telecoms, namely Chunghwa Telecom Co., Ltd., Far EasTone Telecom Co., Ltd. and Taiwan Mobile Corp., and showing ambition to tap China's cloud computing market by establishing cloud-technology companies in Beijing and Shanghai.

The PC contract maker's new path of diversification has been marked by the chairman Lam's announcement last year that the new 3C (connectivity, client, cloud computing) era has arrived, despite uncertain market prospects of cloud computing and related applications.

Sales of Non-iPad Tablet PCs in 2011
Brand (Model)	Sales Forecast	Documented  Sales	Contract Supplier
RIM (BlackBerry Playbook)	400,000 units per month	Some 700,000 units in RIM's fiscal Q1 andQ2	Quanta Computer Inc.
HP (TouchPad)	200,000-300,000 units per month	Production  halted	Inventec Corp.
Acer (Iconia)	2.5-3 million units for 2011	Nearing 2-2.4 million units	Compal Electronics Inc.
Samsung (Galaxy Tab10.1)	400,000 units per month	Banned in Germany due to patent infringement	Manufactured in house
Asus (Eee Pad Transformer)	2 million units for 2011	1.2-million-plus units before Q4	Pegatron Corp.

Source: Commercial Times