HP to move production of millions of computers to Thailand and Mexico

Receive free Supply chains updates

We’ll send you a myFT Daily Digest email rounding up the latest Supply chains news every morning.

HP is working with suppliers to shift production of millions of consumer and commercial laptops to Thailand and Mexico this year, in the top US computer maker’s first substantial move to diversify its personal computer supply chain beyond China.

The world’s second-biggest PC maker by shipments after China’s Lenovo, HP is planning to shift some commercial notebook computer production to Mexico, while a portion of its consumer laptop production will go to Thailand, people briefed on the matter told Nikkei Asia. HP is also planning to shift some laptop production to Vietnam starting next year, one of the suppliers said.

The output outside of China this year will be a couple of million to 5mn units, they said. HP shipped 55.2mn PCs worldwide last year, data from market researcher Canalys showed.

Thailand already has a number of PC suppliers, which could facilitate HP’s shift, while production in Mexico would help the company better serve its primary North American market.

HP said in a statement on its website that it was expanding existing operations in south-east Asia and elsewhere and had been “adding incremental notebook PC production” in Mexico.

In an email to Nikkei, the company said: “China is a very important part of our global supply chain and we remain deeply committed to our operations in Chongqing.”

HP’s plan comes after its competitor Dell launched a more radical campaign to exclude “made in China” chips from its products and significantly reduce its overall use of electronic components produced in the country, Nikkei Asia first reported.

Dell, which launched its diversification plan earlier than HP, will make at least 20 per cent of all of its laptops in Vietnam this year, people with direct knowledge told Nikkei. On the component level, it will take Dell until about the end of 2024 to complete its planned shift away from “made in China” chips.

Apple, meanwhile, began making MacBooks in Vietnam this year, the first time its laptops were made outside China, fulfilling plans that Nikkei reported on late last year.

HP’s move would further help Vietnam and Thailand build up a supply chain ecosystem for PCs, making south-east Asia an even more attractive option for computer makers looking for production options outside China amid geopolitical uncertainties.

The company has been relatively slow to shift production out of China compared with other US tech companies, despite having been in talks with suppliers to evaluate such an option since 2019.

“HP’s plan is shifting the product assembly to destinations beyond China first, but it has not yet made a clear and strong commitment to massively switch to non-China-made chips and components,” said a supply chain executive with direct knowledge of the matter. However, HP has already spoken with electronics component makers with production capacity in Vietnam about shipping to Thailand, according to three people from different suppliers directly involved in the talks.

“HP wants to stay low-key about its plans to shift outside of China. Apart from geopolitical concerns, it also takes into account China’s continued rising manufacturing costs, including challenges in recruiting labour and the increasing labour costs,” said an executive at an HP supplier.

The top US PC maker has been a strong supporter of electronics manufacturing in China for decades.

Perhaps the best example of this is the inland Chinese city of Chongqing, which HP began developing as a hub for laptop production in 2008. Acer and Asus followed in HP’s footsteps and asked suppliers to move production to the city on the banks of the Yangtze river, which is now also home to numerous HP suppliers, from Quanta Computer and Inventec to Foxconn. Today Chongqing is the top city in China for PC exports.

The flip side of this support is that the supply chain for notebook computers is now so deeply rooted in China that many industry experts and analysts say shifting away is difficult.

The US is the biggest single PC market for HP and Dell, accounting for about 31 per cent and 40 per cent of their shipments, respectively, in the first quarter of this year, data from Canalys showed. The Chinese market, on the other hand, only accounted for 7.5 per cent and 8 per cent, respectively, over the same period.

China’s Lenovo and Huawei together dominated the Chinese PC market in the first three quarters of this year. Dell has a strong political incentive to diversify its production away from China, as the company controls about 73 per cent of the market for US government-use PCs.

“The primary purpose of supply chain diversification is to mitigate risk factors related to US-China tensions, or to take advantage of emerging production hubs in Vietnam and other Southeast Asian countries,” said Kieren Jessop, an analyst with Canalys.

Jessop said the supply chain diversification was not likely to directly affect American PC makers’ market share in the Chinese domestic consumer market. However, it may affect some government-related bids. “Some opportunities in government or public education [sectors] may be lost because of concerns and policies around domestic sourcing and manufacturing,” Jessop said.

Dell did not respond to a request for comment.

A version of this article was first published by Nikkei Asia on July 18. ©2023 Nikkei Inc. All rights reserved.

Related stories