UPDATE 1-Flextronics eyes $3.5 bln in notebook PC sales by 2011

* Enters notebook PC sector in challenge to bigger players

* Aims $3.5 billion in revenue by 2011

* Quadruples notebook manufacturing staff numbers in Taiwan

* Follows acquisition of Arima Computer last year

By Kelvin Soh

TAIPEI, July 13 (Reuters) - Electronics giant Flextronics (FLEX.O) will quadruple its notebook PC workforce in Taiwan, in a major push that would pit it against established contract PC makers such as Quanta (2382.TW) and Compal Electronics (2324.TW).

The addition of 1,500 engineers to the Singapore-based firm's FLEXComputing Taiwan unit will bring the total to 2,000, as it looks to grab a piece of a fast-growing global notebook PC market expected to pass traditional desktop PCs this year in unit sales, sources told Reuters on Monday [ID:nTP107611]

The move follows Flextronics's acquisition of PC contract manufacturer Arima Computer last year.

"The unit in Taiwan will focus primarily in research and design work because that's where the major suppliers are," said one of the sources, who spoke on condition of anonymity because they are not authorised to speak to the media. "Manufacturing will still be done at the company's factories in China."

The sources said the expanded unit, which would focus on notebook and netbook PC manufacturing and design, would have an annual sales target of $3.5 billion by March 2011.

That would translate to 3.5 million to 7 million units per year if PCs sold for $500 to $1,000 each, or about 1 pct of the market in 2010, according to overall market forecasts by IDC.

The company has not publicly announced its revenue from notebook manufacturing in the past, but its computing unit that also makes server computers had sales that clocked in at $5.2 billion in the 2008 financial year.

Flextronics' move would be a departure from its previous focus on heavy equipment and mobile phone manufacturing, which in its last reporting quarter made up for almost 70 percent of its total revenue.

It would also pit the company against Quanta and Compal, the world's top two contract notebook PC makers, possibly squeezing already razor-thin profit margins at a time of dampened consumer spending.

Analysts estimate that about 80 percent of all the world's laptop PCs are manufacturered by Taiwanese firms.

Top brands such as Hewlett-Packard (HPQ.N), Dell (DELL.O) and Acer (2353.TW) typically do their own marketing and design work, but outsource the labour-intensive manufacturing process to companies such as Flextronics and larger rival Hon Hai (2317.TW). (Reporting by Kelvin Soh; Editing by Doug Young)