Quanta Computer Inc (廣達電腦) could report double-digit percentage revenue growth in its server business this year and next, despite the lingering uncertainty of the US-China trade dispute and the impact on its notebook computer segment, analysts said.

It could also benefit from growth opportunities in the 5G and Internet of Things (IoT) areas, while fading out from low-profit business, such as the Apple Watch, as intensifying competition adds pressure on margins, they added.

The contribution from server sales is forecast to increase by 12 percent year-on-year to NT$215 billion (US$7.03 billion) this year, and by another 14 percent to NT$245.9 billion next year, Capital Investment Management Corp (群益投顧) said in a client note on Thursday.

“Although the overall server market appears relatively lackluster in 2019, Quanta’s server revenue may maintain strong growth, as its clients are diverse and mostly white-box clients,” the consultancy said.

Quanta’s server business is expected to continue growing on the likely replacement demand due to Intel Corp’s upcoming launch of next-generation server processor Cooper Lake and the rising demand for white-box servers from corporate clients and telecom operators, it said.

Demand for hyperscale datacenters from four major US Internet companies, such as Google Fiber and Facebook Inc, would also boost Quanta’s server sales, it added.

DIVERSIFICATION

Quanta has in recent years sped up the pace of diversification, from making laptops based on brands’ designs to producing cloud-based computing devices such as tablets, wearable devices, servers and datacenters.

It has been particularly aggressive in edge computing and IoT products, such as Google’s smart speakers and self-driving vehicles, Yuanta Securities Investment Consulting Co (元大投顧) said.

“Quanta is making good progress in edge computing and has been providing servers to Japan’s Rakuten Mobile Network Inc since the first half of 2019, with likely additional contribution from the US and European clients from 2020,” it said in a report on Wednesday.

“We believe the company also has strong ties to Google due to the penetration of Google IoT products and its solid relationships in server and Chromebook businesses,” Yuanta added.

Analysts said that Quanta’s 7.9 percent annual growth in revenue during the first three quarters this year, at NT$265.14 billion, likely implied a contribution from rising cloud-based server shipments, despite a 9.8 percent decline in laptop shipments to 25.3 million units over the same period.

Considering the uncertainty stemming from the US-China dispute, Quanta’s notebook shipments this quarter are forecast to drop 10 percent annually to 8.63 million units and decrease 10 percent to 33.93 million units for the whole of this year, before edging up by 1 percent to 34.3 million units next year, Capital Investment said.

As Quanta’s assembly business for the Apple Watch has posted losses for five years, and it is facing competition from new assemblers, such as Luxshare Precision Industry Co (立訊精密), Compal Electronics Inc (仁寶電腦) and Hon Hai Precision Industry Co (鴻海精密), it is likely to scale down its Apple Watch business and might exit it entirely during the second quarter of next year to focus on 5G and IoT product lines, Yuanta said.