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Compal plans production shift to Vietnam

Compal Electronics Inc (仁寶), the world's second-biggest contract laptop computer maker, said yesterday that it would shift some manufacturing sites to Vietnam to cope with rising costs in China and to limit risk.

The ultimate goal on the diversification plan to move half of its production to new plants in Vietnam -- which looks set to overtake China as the world's workshop -- in the next five to six years, said Chang Chih-ming (張志銘), head of investor relations at Compal.

The Chinese factories would manufacture half of the laptop computers ordered by customers, Chang said.

"We are diversifying our production sites to cope with customers' needs and to manage operation risks. We are also taking into consideration China's new labor rule," Chang said. "We are not exiting the Chinese market."

The new labor rule, which took effect on Jan 1, will lead to a rise in payroll costs of about 20 percent, Chang said, citing Compal president Ray Chen (陳瑞聰).

Companies in China are now required to pay pension and insurance to employees signing long-term contracts as well as severance pay, something they did not have to do before.

Rising costs in China will add pressure to falling gross margins, which are now about 5 percent for computer makers, the Chinese-language Commercial Times said, adding that Quanta Computer Inc (廣達電腦) was considering building a plant in Vietnam.

Compal, which is building its first plant in Vietnam, plans to start the plant's pilot run by the end of this year and launch production in the first quarter of next year, Chang said.

The Vietnamese plant will have a maximum monthly production of 1 million units, but Compal plans to produce just 200,000 to 300,000 laptops a month at first, Chang said. The company would gradually increase volume based on customer demand, he said.

Compal hopes to ship 40 percent more notebook computers this year than last year, for a total of 32 million.

Compal shares fell 0.91 percent to NT$27.35 yesterday, underperforming larger rival Quanta and the TAIEX, which rose 1.16 percent and 0.18 percent respectively.
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