Hewlett Packard (HP) is in talks to sell its computer manufacturing operations in France to Sanmina-SCI in an effort to cut operational costs.
Should the deal go through it would end HP's production of business PCs in Europe and further enable it to outsource commercial PC production to a contract manufacturer.
The announcement of the talks comes as HP continues to try and win shareholder support for its planned $25bn deal to acquire Compaq.
The deal has faced opposition among key HP shareholders who believe that a merger will result in it having a huge and loss-making PC business.
According to HP, however, the talks in France are nothing to do with the merger but rather part of its longstanding strategy to cut costs.
The talks concern HP's Isle d'Abeau site near Lyon, and both HP and Sanmina-SCI are currently in the process of consulting with the French Workers' Council, a union body, about the transaction. The deal is also subject to company and regulatory approvals.
The site is responsible for producing two-thirds of all HP business PCs sold in Europe. Following the sale, outsourced manufacturers will build all of HPs European business PC machines. The company's consumer PCs are already 100 per cent produced by other manufacturers.
Worldwide, more than 90 per cent of HP's business computers would be manufactured by outside companies after the deal closes, up from less than 50 per cent now.
HP has four plants in Asia-Pacific and two in Latin America that make business PCs. The company, which says it began outsourcing PC manufacturing in 1993, said it also expects to sign further implement outsourcing deals at other locations.
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