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Quanta mulls more US and Europe output amid China trade spat

Taiwan contract computer maker looks to augmented reality gadgets in 2019

Quanta Computer, which counts U.S. tech companies Apple, Facebook, Google, and Amazon.com among its clients, is bracing for fallout from the U.S.-China trade dispute.

TAOYUAN, Taiwan -- Quanta Computer, a key supplier to Apple and other big U.S. tech companies, is considering expanding production in the U.S. and Europe in response to escalating trade tensions between Washington and Beijing.

"We already have assembly lines for servers and computers in the states of California and Tennessee. We also have a plant in Germany," Quanta Chairman Barry Lam said at a news conference on Wednesday. "There is no problem to increase the production capacity there, if necessary," he said.

Lam said building new factories in Southeast Asia or India is not an option for Quanta, as the company is stepping up automation. "Industrial automation reduces the need for labor, but it increases the demand for engineers," he said. "That is also something we need to think about when considering overseas expansion."

The move to expand production outside China has not been finalized. Quanta is still waiting to see how the trade spat between the U.S. and China develops, Lam said.

Quanta is the world's largest contract manufacturer of notebook computers, servers and data centers. U.S. tech leaders, including Google, Facebook, Amazon, HP and Dell, are also clients of the Taiwanese company.

Quanta makes wearable computers like the Apple Watch and smart speakers such as Google Home. Around half Quanta's revenue comes from notebooks, and Apple is the company's top customer.

The first wave of U.S. tariffs on $34 billion worth of Chinese goods took effect in early July, with duties on another $16 billion of imports set to hit on Aug. 23. The U.S. is preparing an additional round of tariffs on $200 billion of Chinese goods and threatening to raise the duty to 25% from 10%. This latest round of tariffs covers a wider range of products, including cloud-computing equipment, desktop computers, wearable computers and smart speakers.

Quanta Vice Chairman C.C. Leung said the company's servers, wearables and smart speakers could be hit if those tariffs take effect as expected in September. "We've been drafting backup plans and communicating with our clients, but we are not certain which plan will be the most effective at the moment."

Quanta is not the only Apple supplier that is considering shifting production to the U.S. if the trade war heats up. Tung Tzu-hsien, chairman of Pegatron, a big iPhone assembler, in March said the company may convert its repair and maintenance facilities in the U.S. and Mexico into assembly lines as a short-term solution if the worst-case scenario comes to pass.

Despite the ongoing tussle between Washington and Beijing, Quanta is continuing research and development on technologies such as artificial intelligence and augmented reality, as it looks for new sources of growth.

Leung said Quanta is developing a thin and light AR gadget for a client that could be commercialized as early as the second half of 2019. He declined to give details on the client.

AR technology has improved over the years, but the hardest nut to crack has been the weight of the devices, Leung said. "Our aim is to produce a gadget that weighs less than 100 grams and can be worn for an hour without any discomfort," he said. The product will be cost-competitive, efficient and eventually voice-controlled, Leung said.

Quanta's revenue fell 7.4% on the year to 429.15 billion New Taiwan dollars ($14.03 billion) in the first half of this year. Its net profit also shrank 7.4% to NT$6.27 billion. Quanta attributed the declines to delays in a key client's new notebook computer.

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