SAN JOSE -- Will Flextronics stay in the outsourced PC market?

That's the question many analysts are asking following a revelation by the company's CEO that the world's second-largest EMS company has seen notebook PC margins drop sharply over the past two years.

According to DigiTimes, Flextronics chief executive Mike McNamara noted the average gross margin for outsourced notebooks is now 1.5% -- half the figure when Flextronics ramped its notebook business four years ago.

DigiTimes reported sources indicate Flextronics will instead focus on the higher margin tablet PC and smartphone markets.

Speculation on Flextronics' commitment to the notebook PC segment has been high for months, and the company has yet to concretely affirm its direction. During the company's quarterly conference call on April 28, McNamara hedged when asked about the company's commitment to the PC market.

In response to a question by Deutsche Bank analyst Sherri Scribner, who asked, "Are you still committed and do you still expect to double that business this year?" McNamara noted Flextronics has grown its contract PC notebook unit from essentially nothing to a $4 billion business for its fiscal 2012, which began April 1. But he declined to equivocally state the company was in the market for the long-term, adding to the speculation.

"We hit our objective of what we thought was kind of a minimum level that was necessary to be relevant in the business and to have any sort of scale to have a high quality business," McNamara said.

"Going forward, we don’t have a strategy of going one, two, four, eight [billion]. [O]ur objective [is] to have a broad penetration into all the electronic markets and ... to balance our business between margins and return on capital. ... [W]hat that means is we’ll portfolio-manage our business in a very active way and some business units will try to push on the accelerator and other businesses will slowdown. I wouldn’t say we’re not committed; I would just say that we are going to manage our overall portfolio of businesses to optimize cash generation return on capital growth."

Flextronics has yet to respond to a CIRCUITS ASSEMBLY request for comment.