* Quanta Q2 net up 5.1 pct to T$5.37 bln vs consensus T$5.2 bln
* Quanta has conservative view on notebook market
* Sees 2011 shipments up 10 pct vs 2010
* Compal Q2 down 49 pct to T$3.28 bln vs consensus T$3.19 bln (Recasts, adds Compal results and comment)
By Clare Jim
TAIPEI, Aug 31 (Reuters) - The world's top two contract laptop makers gave subdued outlooks on Wednesday in the face of stiff competition from tablet PCs and a deep malaise in major western economies that is sapping consumer buying power.
While Taiwan's Quanta Computer Inc and Compal Electronics Ltd beat forecasts for second quarter profits, their forecasts underscore the challenge facing the traditional PC industry and the need for contract makers to look for new ways to grow.
"Profit margins have been a problem for Taiwan's contract manufacturers," said Helen Chiang, senior research manager at research firm IDC.
"Over the past few years, we've seen their revenues growing strongly even though margins have been low. But from this year onwards, their revenue growth has been disappointing, partly due to economic problems."
Quanta and Compal, which supply top global brands such as Hewlett-Packard Co (HP) , Dell Inc , Lenovo Group Ltd , Apple Inc and Acer Inc , join a number of other tech firms in Asia in forecasting a slowdown this year as demand wanes.
The success of Apple's iPad has dented consumer demand for laptop computers, also known as notebooks, while the long-hoped for recovery in the corporate and government PC replacement cycle has been derailed by the U.S. and European debt crises and associated fallout.
"It's still unclear whether we'll see growth in the notebook market or not; we're holding a conservative outlook," Quanta President C.C. Leung told a briefing.
HP JOLT
Quanta recorded a net profit of T$5.37 billion ($185 million) for April-June, up 5.1 percent from the same period a year earlier but down 6 percent from the previous quarter. Eleven analysts polled by Thomson Reuters I/B/E/S forecast a profit of T$5.20 billion.
But it said it saw traditional pre year-end holiday demand slowing and lowered its notebook shipment growth forecast for the second half to a 5 percent rise over the first half.
Compal, whose major client Acer recently posted its first ever quarterly loss, reported net profit of T$3.28 billion. That was above forecasts of T$3.19 billion but down 49 percent from the previous year and 6 percent from the first quarter.
It cut its full-year shipment forecast by 12.5 percent.
The PC business got a jolt this month when HP, one of the industry's pioneers, announced it might spin off its PC unit, leading some to question the future of contract manufacturing a business already beset by low margins.
Compal downplayed the threat from HP's move on Wednesday, saying the the business could be more efficient if separated from HP proper, but it and Quanta have already started to look at new areas to increase margins languishing in low single digits.
Software development and cloud computing -- using remote servers hosted on the Internet to manage and store data -- are areas where PC makers are focusing their energies.
"Cloud is what we're working towards in the next 10 years, different from our path in the past 20 years," Quanta Chairman Barry Lam told a briefing. "This is a certain and meaningful path for us to go; we're not in a pure contract maker business model."
Tracy Tsai, an analyst at technology research firm Gartner, said PC demand will remain strong as tablets cannot replace traditional PCs in areas such as governments and educational institutions.
"It takes time for company to diversify into higher margin business, but it can't be achieved at once, the R&D and learning curve all takes time," she said.
"The PC business right now is a stable and regular business that generates only slower growth, so they can't just forgo the business."
Compal has already announced a push into software and tablets to move up the value chain, though it faces stiff competition in both sectors.
Sony is joining a host of companies launching tablet computers, while HP is buying UK-based Autonomy Corp to push further into software.
"In this post-PC era, companies that make tablets or are competitive in cloud computing are the future," said Bevan Yeh, a senior fund manager of Prudential Financial Securities Investment Trust, citing the low valuations of traditional PC vendors which make them unattractive.
Yeh also said he is more bullish on the PC contract makers than PC vendors, especially those in Apple's supply chain, such as Quanta which manufactures the MacBook Air.
Shares of Quanta have fallen 4.3 percent so far this year, outperforming Compal's 19.5 percent slide. The broader market has dropped 13.7 percent in the same period. (Additional reporting by Argin Chang in Taipei and Lee Chyen Yee in Hong Kong; Writing by Jonathan Standing; Editing by Lincoln Feast)
