Compaq teams with Quanta, contemplates Transmeta PCs

Compaq officials also separately stated that the company is investigating releasing notebooks for the consumer and commercial markets containing Transmeta's Crusoe chip.

Although Houston-based Compaq has not determined whether it will adopt the chip, there is a good chance Quanta could participate in the effort. The company has already signed on to make IBM's Transmeta-based notebook and Gateway's upcoming Web pad.

Under the deal announced earlier this week in Taipei, Compaq and Quanta will team up on a number of initiatives that effectively will tie Compaq closer to Quanta's manufacturing capabilities.

Quanta Display, for instance, has installed a $15 million factory management system, based on Compaq technology, to help the company manage production of liquid crystal displays (LCDs), the flat-panel screens found on cutting-edge desktops and the most expensive notebooks.

Quanta Display is the latest division for the conglomerate. Japan's Sharp owns approximately 9.5 percent of Quanta Display. The company's first plant will begin shipping screens in volume in April 2001. Construction will begin in November on a second plant, set to open in late 2001.

In turn, the Taiwanese group will become a major manufacturer of consumer notebooks for Compaq, said Peter Blackmore, Compaq's senior vice president. The deal is largely calculated to accommodate rapid growth in portable PCs, he said. Notebooks made by Quanta for Compaq will emerge in the third quarter. Some of these systems will be in the sub-$1,000 category.

Historically, Compaq has subcontracted with Arima and Inventec, two other Taiwanese manufacturers, for its notebooks, according to the Market Intelligence Center, a Taipei-based analysis firm that works closely with the government of Taiwan.

Additionally, future Compaq notebooks may include chips from Transmeta, according to Rosemary Ho, managing director of Compaq Taiwan. Compaq representatives in the United States confirmed that Compaq was investigating Transmeta designs, although the company has not, as yet, irrevocably committed to coming out with a Crusoe-based portable.

Although Compaq is an investor in Transmeta, the company has shied away from formally announcing a notebook or Internet appliance so far.

Compaq was conspicuously absent from Transmeta's display last week at PC Expo, where the chip start-up showed off upcoming notebooks containing its processors from IBM, NEC, Fujitsu and Hitachi.

Transmeta executives, however, have said it is likely the hardware investors--a list that includes Toshiba, Sony, Compaq, Gateway, Quanta and First International Computer--will adopt processors from the company.

If Compaq goes ahead with a Transmeta product, the alliance could give them a head start. Quanta Computer will manufacture the IBM ThinkPad 240 with the Transmeta chip, IBM officials have confirmed.

The company will also manufacture a Web pad to be marketed by Gateway and AOL in early 2001, several sources have said. Both products will be marketed later in the United States.

"It's pretty common for U.S. manufacturers to use Asian subcontractors," said Dean McCarron, principal analyst at Mercury Research. "They go with subcontractors to reduce risk."

By outsourcing many of the manufacturing and design functions, a U.S. manufacturer can minimize the financial exposure involved in promoting a new product or format. Conversely, the subcontractor gains a certain amount of insurance because it can work for a variety of brand-name manufacturers simultaneously.

"Potentially, this allows the same box to be sold to different vendors," McCarron said

Quanta last year produced 2.2 million notebooks and is expected to pump out 3.3 million, a 50 percent increase, in 2000.

News.com's Michael Kanellos reported from San Francisco.