June 28, 2000 5:00 AM PDT

IBM, Gateway using Quanta for Transmeta plans

What do IBM's notebook incorporating Transmeta's processor and the upcoming web pad from Gateway and AOL have in common? They will be made by the same company.

Quanta Computer, one of the Taiwan's larger notebook designers, will manufacture the IBM ThinkPad 240 with the Transmeta chip, due later this year, as well as the Transmeta-based Gateway web pad, sources say. Quanta also owns an equity stake in Transmeta, according to the chip company.

That two flagship products featuring Transmeta's upcoming processors are produced by the same company reflects one of the major, and often unspoken, trends in the hardware business today. Increasingly, U.S. manufacturers serve sales and marketing organizations while Asian contract manufacturers handle the manufacturing, logistics and often the product design tasks involved in putting products together.

"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."

Risk gets reduced in a number of ways through subcontracting. By outsourcing many of the manufacturing and design functions, a U.S. manufacturer can minimize the financial exposure involved in promoting onto a new product or platform. Conceptually, all engineering and production work can be farmed out to subcontractors.

By the same token, 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.

How deeply a brand name manufacturer gets involved in the process varies. IBM, McCarron said, typically works tightly with its subcontractors, overseeing product specifications, technical support and quality control.

David Nichols, a segment marketing manager at IBM, confirmed that Quanta will manufacture IBM's Transmeta notebook being shown off at PC Expo, but did not indicate how much of the design work or engineering Quanta performed.

Other companies take a more liberal attitude. "It's like, 'Here's a check. We expect two 26-foot cargo containers next week,'" McCarron said.

Costs also play a role. Historically, labor rates have been lower in Asia than the United States. Although Taiwan has been a huge center for manufacturing, rising labor costs are encouraging companies to open plants in mainland China. Companies can save roughly $650 a month per employee by migrating to the mainland, according to Victor Tsan, director of the Market Intelligence Center, a research firm in Taipei.

Although Quanta is unknown to most U.S. consumers, the company's products, under the cover of other brands, are quite popular here. The company manufactures notebooks for IBM, Dell, Apple, Hewlett-Packard and Gateway, according to statistics from Tsan. Approximately 49 percent of the global notebook output came out of Taiwan in 1999.

Two other companies that will likely emerge as a subcontractor of Transmeta computers and appliances are First International Computer, a Taiwanese company that is in the same conglomerate as chipset maker Via Technologies and Compal, which has manufactured notebooks for Toshiba, Dell, Fujitsu and HP.

Both companies are investors in Transmeta as well. First International recently showed off a prototype of a Transmeta web pad that will contain a port for Sony Memory Sticks. Fujitsu, a Compal also unveiled a Transmeta notebook today.

Other Transmeta investors include Sony, Samsung and Pheonix Technologies. The investments came about because the PC manufacturers were interested in taking a financibal stake in the company. "It was at the request of our customers," said Brian Hurst, director of worldwide sales for Transmeta in a recent interview.

The IBM Thinkpad will contain a 5600 Crusoe chip running at 600 MHz, Nichols said, and cost roughly between $2,000 and $2,400 when it comes out later this year.

Neither Gateway nor AOL has confirmed that the company will make the web pad. However, several sources have said that Quanta has designed and will manufacture the web pad. Recently, a Quanta executive declined to comment on the issue, but laughed with glee when asked. The device is expected to cost somewhere in the $600 range.

Stephen Shankland contributed to this story.

 

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