Retail prices for laptop computers are poised to rise as manufacturers increase prices for the first time amid soaring raw material and assembly costs.
Quanta, Compal and Wistron, the three biggest laptop makers by output, are in talks with their customers - branded PC vendors such as Hewlett-Packard (NYSE:HPQ) , Dell (NASDAQ:DELL) and Acer - on how to share the burden of rocketing prices for materials and rising labour costs in China where the manufacturers have their main production bases.
"We will be raising prices for the first time," said Ray Chen, chief executive of Compal, which expects to account for 25 per cent of the global market this year.
"In the past, we [the contract manufacturers] were always forced to absorb upward price pressures. But 95 per cent of the industry is controlled by Taiwanese manufacturers and the prices for key materials such as copper and plastic resin and the cost of labour in China have been rising so much that it doesn't make sense for us to continue lowering prices."
Quanta, Compal, Wistron and their smaller competitors design and assemble most laptops that the big PC companies sell under their own brands. Over the past decade, the profits of Taiwanese contract manufacturers have been squeezed following consolidation among branded vendors.
The Taiwanese companies have called for price rises following past surges in cost, such as the start of the appreciation of the Chinese currency against the US dollar in 2005 but never managed to get their customers to agree.
Now, however, several of the branded PC companies have agreed to share part of the burden, recognising that the entire supply chain is clamouring for price rises, according to executives at the laptop manufacturers.
Chris Wei, an analyst at the Institute for Information Industry, an industry think-tank in Taipei, said: "This time, the industry can make a case because makers of components such as batteries, panels or memory chips, which in some cases the branded vendors source directly themselves, are sending the same message."
The main pressures are coming from soaring prices of cobalt and nickel, two metals used in rechargeable batteries, as well as the introduction of labour laws and tax rules in China last year that have driven up manufacturing costs.
The manufacturers and branded PC companies will want to agree on how to share the burden of rising costs by June, which is when most companies expect to conclude orders for the following year.
The manufacturers have been asked by the PC companies to list the price increases in key raw materials, components, labour cost and taxes. On this basis, individual agreements would be worked out on price increases for each product, the executives said.
Analysts said higher costs would probably be passed on to shoppers soon although it was difficult to estimate the extent of price rises because the talks were taking place between individual companies rather than on an industry-wide basis.
"From the second half of this year, new models will be launched with slightly higher price tags, and prices for older models will not come down as much and as quickly as they would have," said Mr Wei.
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