PC Makers Shift Production Back to China Amid Rising Component Costs
HP and Asus pivot manufacturing strategies to combat surging AI-driven hardware expenses.
1Strategic Manufacturing Reversal
Major PC manufacturers including HP and Asus are relocating production from Thailand and Vietnam back to China. This shift marks a reversal of the industry's China+1 strategy, which was adopted to mitigate geopolitical risks and tariffs. Rising costs for AI-driven components have forced firms to prioritize immediate manufacturing efficiency over geographic diversification.
2Escalating Bill of Materials
Hardware margins are under severe pressure as the bill of materials for notebooks has surged significantly. Processors, DRAM, and SSDs accounted for 68% of the total cost in Q3 2026, compared to 45% in early 2025. Memory and storage costs alone rose from 15% to 40% of the total unit price.
3Chinese Assemblers Gain Ground
Traditional Taiwanese ODMs like Quanta and Foxconn are increasingly focusing on high-margin AI server production rather than PCs. This capacity gap allows Chinese assemblers such as Luxshare and Huaqin to secure orders. These firms are actively undercutting competitors by waiving engineering fees and offering better access to local memory chips.
4The Memory Supply Factor
Access to Chinese-made memory is a primary driver for the relocation. HP, Asus, and Acer have already qualified DRAM from China's CXMT for use in non-US markets. While relocating assembly does not inherently lower silicon prices, these Chinese contract manufacturers leverage local supply chain proximity to provide more competitive overall pricing.
5Power Dynamics with ODMs
The relationship between brands and manufacturers has shifted as server revenue dominates ODM earnings. Quanta, for instance, reportedly halted HP notebook production during price negotiations in September 2026. This leverage forces brands to seek alternative, hungrier assemblers who are more willing to accommodate lower-margin PC contracts to gain market share.
6Impact on Global Capacity
TrendForce estimates that global notebook production outside China will drop from 24% in 2025 to 21% in 2026, potentially falling below 20% by 2027. Suppliers who invested heavily in new production lines in Southeast Asia now face idle capacity and unprofitability as orders migrate back to the established Chinese manufacturing ecosystem.
7Market Volume and Pricing
Global PC shipments plummeted 20.1% year-over-year to 62.7 million units in Q3 2026, with HP experiencing a 30.9% decline. Acer expects average PC prices to climb between 5% and 20% in the fourth quarter. These efficiency-driven moves aim to protect thinning hardware margins rather than reduce final sticker prices for consumers.
8Long-term Supply Outlook
Industry leaders remain divided on the duration of the current component crunch. While SK hynix expects demand to outstrip supply through 2030, Acer CEO Jason Chen anticipates price relief starting mid-2027. Until then, cost-cutting through manufacturing consolidation remains the primary survival mechanism for major brands struggling against declining global shipment volumes.