Compaq shift to services a boon for Taiwan

By CNN's Kristie Lu Stout and wire reports

TAIWAN, Taipei (CNN) -- More outsourcing opportunity is seen for Taiwan's PC makers as U.S. firms like Compaq reboot their business strategy to focus on services.

Compaq, which lost its lead in the PC market to Dell Computer this year, has announced an agenda to shift from a computer hardware maker to a business services company.

The Compaq announcement symbolises a trend in the sector as more and more U.S. tech firms move to software services and outsource their hardware requirements to Taiwan.

"The Compaq announcement makes sense," said Merrill Lynch's Taipei-based tech analyst Tony Tsung. "And that's the whole trend towards value-added software and storage services, away from low-end PC and PDA manufacturing."

More hardware business

"At the same time, Asian hardware companies will get more hardware business… with more U.S. companies shipping production to Asian companies."

In a memo to staff dated June 12, Compaq chairman Michael Capellas said the company would aim to cut $200 million in costs every quarter for total savings of $800 million for the year.

He spelled out an approach that includes a greater focus on services and software, not unlike IBM.

IBM claims to have dodged the brunt of the technology slump in part due to the strength of its large services business and its exit from the consumer PC market a year ago.

In the memo, Compaq also indicated it has allocated $500 million to acquire services companies.

Industry observers are praising Compaq's strategic about-face, saying the move towards services places the company higher in the food chain.

But it may not be long before Taiwan's top PC makers Quanta, Acer or Asustek will also make the advance into the server and storage businesses.

"That's the next generation of outsourcing business for Taiwanese companies," said Tsung.