UPDATE 1-Taiwan's Compal sees strong demand for PCs

* Forecast Q3 to climb 20 pct q/q; Q4 up 10 pct q/q

* Gross margins flat in Q3 from Q2

* Sees 2010 overall PC industry growth at 15-20 pct

* Forecast more bullish than research firm iSuppli

* Shares surge to 16 month high, up 6.8 pct

(Adds quotes, details)

By Kelvin Soh and Roger Tung

TAIPEI, Sept 4 (Reuters) - Compal Electronics (2324.TW), the world's No. 2 contract laptop PC maker, forecast strong PC demand for the rest of the year, underscoring a return in consumer and corporate tech spending.

Compal now expects shipments in the current three months to climb 20 percent from the second quarter, confirming analysts' figures a day earlier, as the company saw a rebound in mature markets, particularly in Europe.

"The rest of the year and 2010 should be something we can look forward to," Compal President Ray Chen told an investor conference. "Corporate demand is slowly returning, and I think things should look quite good overall."

He added he expects laptop PC shipments to grow an additional 10 percent in the October-December quarter from the preceding three months, ahead of the peak holiday shopping season in most Western markets.

"October is traditionally the busiest period for us," Chen said. "This year, it'll be even busier because some of that demand that traditionally comes in the second quarter has been pushed back to the third or fourth quarters of this year."

The second half of the year is typically the busiest time for most PC brands, helped by students returning to school after the summer holiday, and ahead of the peak shopping season in November and December.

This year, Microsoft's (MSFT.O) launch of its Windows 7 operating system is expected to give the sector a further boost, as companies still running older versions of the software replace their ageing PCs.

STRONG DEMAND IN 2010

Chen also said he expects the overall global PC industry to grow by about 15-20 percent to about 175 million PC units in 2010, and expects Compal's shipments to grow by a similar amount.

Compal's forecast is more bullish than research firm iSuppli, which expects the overall PC market to grow 4.7 in 2010 from this year.

Compal, a key supplier to top PC brands such as HP (HPQ.N) and Dell (DELL.O), and its larger rival Quanta (2382.TW) together make more than half of the world's laptop PCs for many brands, which usually do their own design work and outsource the labour-intensive manufacturing process.

"The biggest concern right now is about the possibility of component prices climbing next year, which will hit companies who are trying to cut prices right now," said Chen.

Gross profit margins, which have come under pressure as prices of chips and LCD panels rise, should remain flat in the third quarter from the previous three months, helped by a ramp-up in production numbers.

"We're now manufacturing a lot more PCs now, which gives us the critical mass needed to maintain a stable profit margin," said Compal's Chief Financial Officer Gary Lu.

Compal held its investor conference after announcing market-beating second quarter results in August, helped by strong laptop PC and LCD television sales. [ID:nTP304868]

Investors have been bullish on Compal's prospects this year, with its share having more than doubled this year, compared to a roughly 50 percent advance on the benchmark TAIEX share index .TWII. Compal shares surged 6.8 percent to a 16-month high on Friday, closing at T$36.90. (Editing by Valerie Lee)