This year marks a moment of celebration for Quanta Computer, but the world's largest contract manufacturer of notebook computers also faces a test, as it must now move beyond its current peak without entering a trough.

When Quanta marked its 20th anniversary in May, its first birthday gift was a stellar performance in the CommonWealth Magazine's Top 1000 Enterprises ranking.

Squeezing out rival notebook maker Asustek Computer, Quanta came in as Taiwan's second largest private manufacturing enterprise, with an annual turnover of NT$777 billion, second only to Hon Hai Precision Industry. Quanta's stunning 45-percent revenue growth disproved the widely held notion that the company's growth was losing steam.

Posting Profits at Twenty

Quanta was able to regain its old luster not only because of loyal, unwavering support from its old customers – with Dell accounting for more than 50 percent of orders and rock-solid orders coming in from IT giants HP and Acer – but also thanks to synergies from new manufacturing bases in China.

Quanta established a manufacturing center in the Songjiang district near Shanghai in late 2000, much later than its competitors, eventually giving in to continuing demands from its customers to ship products directly from China. Subsequently, Quanta continued to expand its production network in China. Nowadays, Quanta chairman Barry Lam spends at least one week per month in China. He has realized that manufacturing in China has been a key to profitability as Quanta marks its 20th year in business, and in the future, the Chinese market will prove even more essential.

Faced with weakening growth momentum as notebook computers are already widely used, Quanta – the world's largest notebook manufacturer – first of all needs to prove wrong all those who keep predicting the company's decline.

In 2005 market rumors began to swirl, claiming that Quanta was facing a growth bottleneck. Then Lam's decision to participate in the development and production of low-cost laptops for the One Laptop Per Child (OLPC) initiative was not seen as a wise business decision.

But Lam, known to face challenges with the brave spirit of an innovator, again dumbfounded his doubters. His nose for innovation was proven right when Asustek's low-cost "Eee PC" began to sell like hotcakes last year.

An Appointment with the Age of the Public Computer

Envisaging Quanta's future development, Lam predicts, "The future, I believe, will be the age of OLPCs and public computers."

C.C. Leung, Quanta vice chairman and president, points out that at the end of last year Quanta already began to churn out OLPC laptops. As for public computers, Leung reveals that Quanta is currently busily negotiating with various Chinese institutions, schools and telecom service providers, and expects to see this rapidly expanding cooperation reflected in Quanta's output next year.

Recently, various institutional investors thought Quanta to be already past its prime and voiced concern over its future prospects. But banking on his trademark knack for innovation, Lam again proved everybody wrong.

So what does Lam, as a veteran in the rapidly evolving high-tech industry, consider Quanta's future growth equation? What are the innovator's thoughts and master plans for the company?

Having shunned the media for almost three years, Barry Lam finally sat down with CommonWealth Magazine for an exclusive interview on April 15, 2008. Together with his longtime comrade in arms C.C. Leung, he talked about his plans for the Quanta Group at the brand-new Quanta Research Institute in Linkou outside of Taipei.

Following are highlights from the interview:

---

Q: Chairman Lam, how do you view the coming two decades?

A: Twenty years is looking too far into the future! Particularly because presently the whole world is looking toward China, and China is undergoing such massive changes. It is utterly impossible to foresee the future twenty years from now.

China represents one quarter of the world market and has many business models that are completely different from what we used to know in the past. But what's for sure is that from now on, we need to attach importance to the Chinese market. We need to march toward the Chinese market. They're not focusing on exports, but are defining their own standards. China has different specifications, for instance, for 3G and other wireless technologies. However, since all these things are happening right now, it is not yet possible to say whether they are good or bad developments.

Great Opportunities for Pushing Public Computers

Q: China plays such a crucial role in future economic development. How should Quanta make use of China's strength?

A: We already have a very large production base there. Now we do a part of our design there too.

However, since nationalism is still running high in China, Taiwanese brands still face rejection. But we can cooperate with their enterprises. For instance, for the OLPC initiative we are discussing cooperation. They will make the CPU themselves. This is already working.

China is an extreme example of an M-shaped society. There are too many poor people there. I'll cite an example. In the past I used to talk a lot about virtual computers, but I think we should rather talk about "public computers." If several public computers are installed at whatever organization or school, then you only need to have a small device like an OLPC to be able to connect to the public computer resources.

If users paid fees [when using a public computer], the OLPC could become even cheaper. This is because when using your device, you would be actually using the resources of the public computer, so that the OLPC would not have to be equipped with computer functions at all. For instance, sending video and audio files, downloading games – depending on which game I want to play or which TV channel I want to watch – I can get them from a multimedia public computer. It could evolve into only paying for what you use, and not having to pay for what you don't use.

The future, I believe, will be the age of OLPCs and public computers. Google has now also begun moving toward the public computer concept. Over the past few years, Microsoft has also often said that in the future users will only need a payment card that is plugged into the computer during use and taken out when they are finished. That's the same idea.

Q: What role could Quanta play in the grand future of the public computer?

A: We could manufacture public computers.

On the customer end we are already the largest. In the server segment we are already very big. [Presently servers account for 1 percent, or about NT$7.7 billion, of Quanta revenue.] For example, for Google's server farms, we provided quite a few things, such as servers and storage solutions, which were concurrently developed.

We are already discussing cooperation with many major customers, for example regarding mobile internet devices. With our customers we also discuss certain devices that facilitate the massive bandwidth WiMax services require.

Not Afraid to Share the Pie

Q: What if more and more manufacturers make OLPCs, given that such devices keep getting simpler?

A: That would require branding and a tacit understanding with operators. We are not afraid of this, because our output is already very big, so people trust us.

In the future, you will need to look at economies of scale and a company's credibility. It's a different thing if a company enjoys credibility. Quanta, for example, has many engineers. These people were not trained in a day or two. People join forces with us because they trust our engineers.

Q: Compared with other companies Quanta doesn't seem to be enthusiastic about mergers and acquisitions.

A: That's true. We very seldom acquire an electronics firm, because it's very difficult to blend corporate cultures.

Also, right now we make notebooks. We already have what we need to make what we want, so we don't really need to go for vertical integration.

Q: Does Quanta have plans to enter the fields of automobile electronics and medical electronics?

A: We are doing these, but it's very difficult.

Automobile electronics are very, very difficult. Automobile electronics has many levels. We are already doing some of them such as GPS or other computer-related things.

But when it comes to stuff inside the car like ignition systems, engine systems, people won't change their suppliers. They will keep us out, because it's a closed industry. It's even difficult to get a foot in the door of Chinese automobile factories. They only use their own systems.

Leung: We have actually been working in the automobile electronics and medical electronics fields, and these efforts will soon come to fruition.

Don't Underestimate the Potential of Public Computers

Q: How can this sole concept of public computers ensure Quanta's continued growth?

A: Don't underestimate public computers. They have quite a big peripheral growth potential.

And then there are industrial computers. We are now making a small switchboard for use with IP phones. This means that a small company of less than 50 employees can buy this switchboard and then make all phone calls via the Internet without having to pay telephone fees anymore. In other words, you only need a computer and a switchboard to be able to make Internet phone calls.

Certain businesses seem small in the beginning, but they gradually grow bigger. Look at how many small companies there are worldwide. We can't look at such businesses from the perspective of the Taiwanese economy. When we had just proposed making OLPCs, it was generally not seen as a good decision, but later on everyone discovered that there are a lot of poor people in the world.

Q: When participating in so many business opportunities in the future, will Quanta still stick with the contract manufacturing model?

A: Does it matter that we're a contract manufacturer? It doesn't. Taiwan's wealthiest company [Hon Hai] is a contract manufacturer! (Laughs)

And then there are the likes of Wang Yung-ching (founder of the Formosa Plastics Group), who is also doing contract manufacturing – petroleum contract manufacturing. If he didn't do it, someone else would!

Actually all industries are service industries. Helping people to produce things is a service. The key is the degree of service and whether its content is different from others.

Customers have a lot of ideas that are quite good, but you also have to implement them effectively, and bring them to production. And you need to mass-produce at a level of quality where customers couldn't shatter or break your product even if they wanted to.

After Retirement, Public Service

Q: What would you like to do most after retirement?

A: Public service. There are many corners of Taiwan that you can't see and can't imagine. Once our foundation held a drawing competition. Many kids from rural areas drew very well, drawing their inner world. Many of the kids that were invited to Taipei to receive awards were visiting Taipei for the very first time. One kid bought a new pair of sneakers and wore his uniform specially for the occasion. When he was asked why he was wearing a uniform, he said that it was his only set of clean clothes. He was really very, very poor!

It is hard to imagine why we still have such poor people here in Taiwan. The answer is that we haven't built a good economic structure, so many disadvantaged people are not looked after.

So we who have the ability, and really ought to help these neglected disadvantaged groups.

Translated from the Chinese by Susanne Ganz

---

Chinese Version: 林百里：公用電腦時代來臨了