Quanta's relationship with Apple may be its saving grace
Big orders from its top client are propping up the Taiwanese company in an increasingly tough market.
Taiwanese original design manufacturer (ODM) Quanta Computer looks poised to weather the decline of the PC on the back of its longstanding ties with iPhone maker Apple.
Like other ODMs, Quanta builds devices which are then branded by commissioning companies. It constructs electronics for big names like HP, Dell and Lenovo, but the jewel in its manufacturing crown is Apple. Quanta assembles MacBooks, iPods and the Apple Watch for the American tech giant. Though it has a large data centre business of its own, shipments of laptop PCs comprise about 60 percent of Quanta's revenue.
Its relationship with Apple has helped shield the company from the declining PC market, which in the second quarter of 2015 endured a 9.5 percent year-on-year decline, according to research firm Gartner. Other companies, like Dell, Asus and AMD, weren't so lucky.
Tracy Tsai, a research director at Gartner in Taipei, said the ODM's diversity is significant, explaining: "It's a big advantage for Quanta that they are not overly focused on PCs or the Windows ecosystem and have Apple as a key client."
Apple, which is currently the most valuable company in the world, is performing better than any other global PC vendor. In the second quarter, the Cupertino, California-based firm was the only brand among the top five PC sellers to record positive growth, increasing its market share to 7.8 percent from 5.9 percent in the second quarter of 2014, according to IDC. Apple's shipments rose more than 16 percent annually to 5.1 million units, up from 4.4 million units a year ago, IDC reported.
By contrast, Apple's competitors posted disappointing results. The worst performing of all was Taiwanese PC maker Acer, whose shipments fell nearly 27 percent year-on-year to 4.3 million units from 5.9 million units a year earlier.
Apple's strong performance helped Quanta's sales hit a 44-month high of New Taiwan Dollars (TWD)$106.5 billion ($3.4 billion) in June. In the quarter ending June, Quanta's consolidated sales reached TWD$251 billion ($7.7 billion), an annual increase of more than 17 percent and up about 22 percent from TWD $205.2 billion ($6.3 billion) in the January-March period.
The prospects for Quanta's server business, however, are less rosy, says Pei-feng Hsieh, an analyst at the Taipei-based Market Intelligence & Consulting Institute. The trouble comes from a crowded regional market, with other Taiwanese ODMs Winstron Co. and Inventec having hands in the server market.
"We think Quanta's profitability from its server business is not going to be too pronounced as there are already several Taiwanese ODMs engaged in the white-box server manufacturing business and price competition will intensify," Hsieh says.
Given the less-than-ideal server business, Quanta's partnership with Apple is all the more critical for its long-term prospects.
There's a good chance the relationship will endure. For one thing, Apple is notoriously picky about its suppliers and tends to work with the ones it selects on a long-term basis. For instance, Taiwanese company Foxconn has been making iPhones since the first generation model in 2007. For that reason, Quanta's travails producing the first-generation Apple Watch, which hit the market six months late, will be forgiven, analysts say.
As a major Apple supplier since the early 2000s, Quanta has the ability to produce the hard-to-assemble iMac and MacBook Air computers, notes Jane Yeh, a senior PC analyst at MIC. "Quanta has been able to meet almost all requirements of Apple in terms of product quality, the speed of delivery, and quoted price - and that is what makes the Apple-Quanta relationship sustainable," she says.