Foxconn Electronics, a leading contract maker of various electronics components, may acquire Pegatron Technologies, a spin-off from Asustek Computer that also makes various hardware on contract basis. In exchange, Foxconn will reportedly have to quit retail and channel business.

According to unofficial information reported by The Inquirer web-site, there are ongoing negotiations between Asustek, which still owns Pegatron, and Foxconn over the potential deal under which the latter would acquire Pegatron.

If the companies reach the agreement, Foxconn Electronics (Hon Hai Precision Industry) will get additional manufacturing capacities along with contracts and clients base. The company has to expand its presence on the market of contract electronics manufacturing after arch-rival Flextronics acquired Solectron last year. On the other hand, many sources from Foxconn have noticed that channel and retail markets were natural directions for the firm to grow further.

In fact, Foxconn only sells components (such as mainboards, graphics cards, computer cases and some other), whereas Asustek offers not only components, but also notebooks, netbooks, desktops and other devices aimed directly at retail market.

Asustek Computer has been going for retail and channel business for many years now and its brand it pretty well established now, primarily on the highly-competitive market of PC mainboards. Still, Asus brand is not as appealing as Apple or Acer for the mainstream consumer, which is why dropping contract manufacturing assets in favour of losing a strong competitor on the markets of mainboards and graphics cards would be pretty strange for Asustek.

Earlier this year Foxconn Electronics established another brand-name supplier of computer components called Afox.

Neither Asustek nor Foxconn officials commented on the news-story.

Tags: Asustek, Foxconn, Pegatron, Afox