Why Dell Wants To Sell Its Factories

Dell Inc. (DELL), in a move aimed at cutting costs and improve profitability, according to the WSJ, has approached contract computer manufacturers with offers to sell most — and possibly all  — of its factories around the world within the next 18 months.

The competitive environment of the computer industry has been an essential factor in Dell’s success, one the company took advantage of from the very beginning of its business structure. That business structure was conceptualized in the belief that selling personal computer systems directly to customers would provide the most effective computing solutions. The structured plan also included the philosophy in which inventory was  seen as incurring costs, or waste - prompting Dell to devise a plan for manufacturing its products close to its customers, the implementation of which resulted in increased return on investment and reduced inventory and its associated carrying costs, while maximizing the company’s cash flow. Because of an effective, well-executed and innovative business strategy, in fiscal 1999, Dell became the largest seller of PCs in the U.S., with $25 billion in revenue reported in January 2000.

However, eight years later things have changed considerably for Dell, and so has the market. Over the past three years, growth in the PC market has shifted from corporate customers ordering large volumes of desktop PCs from Dell’s factories to laptops sold to consumers at retail stores. This shift in market dynamics closely correlates with the company posting a 2% annual decline in its last quarter in desktop sales.

Even after more radical surgery, once Michael Dell resumed his role as CEO on February ‘07, the company’s outlook for the time being still remains somewhat fragile. Dell several weeks ago reported a 17% drop in quarterly income on a year-over-year basis. Profit margins fell, with costs remaining quite high. In addition, the Texas-based company is still lagging behind competitors in coming up with a streamlined system to build portable PCs.

Dell owns factories in Texas, Tennessee, North Carolina, Florida, Ireland, India, China, Brazil, Malaysia, and Lodz, Poland. Its plants, although for sale, are still regarded as efficient at churning out desktop PCs; however, the company could face some obstacles in selling them, particularly those in places with high labor costs, like the U.S.

Dell, notes the Journal, hopes that by reducing costs for manufacturing and other operations, it will restore momentum after a slide that saw the company lose its position as the world’s biggest PC maker by sales to Hewlett-Packard Co.(HPQ).

Dell plans to enter into agreements with the contract manufacturers to produce its PCs - since they can generally produce computers more cheaply. This consequently would allow Dell to concentrate on what is most important in its business - whether it is sales, development of new products, or enhancements to existing ones.

Comments

[former dell customer]

The big, big problem for dell is customer service, its a nightmare...so, see you dell....

2008 Sep 05 09:58 PM

[User 256646]

XPS1730. On the face of it a great concept. In real life a rag bag of problems. After only three days a new power supply needed. Shortly ater another one. Three months later another one and a new motherboard. After a few weeks an internal charger failure leading to a loss of data, then a reformat of the disc advised by Dell staff with all the attendant stress and reloading. Another new power supply and then another go at a new mother board. All this with 24hr next day warantees, only as good as the attending engineer. Finally insisting on a new replacement machine, refused. So a return to the factory for a total refit, mboard, both discs, processor and keyboard. This took two weeks. In total I lost around five weeks of vital machine time at very considerable cost in money and time. I sent emails requesting compensation in cash or kind, refused. Do you want to be in bed with this lot??? HELP!!! How can I get compensated !!!
Comment by Sandy - September 5, 2008 at 10:42 am
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2008 Sep 06 05:09 AM

[Urbane Gorilla!]

Both Dell and HP/Compaq have serious service problems. And you wouldn't even know that if the quality of the product was acceptable. My experience with both companies would suggest that if you sold a quality product, you wouldn't need the service department. While working as a travelling claims adjuster, we sequed from IBM Thinkpads to Dells as a means of reducing costs. That was a bad idea. What little we saved in original price was easily surpassed by the multitude of bad computers. My daughters weren't happy with Toshiba or Averatecs and **had** to have HPs (because that's what their knowledgeable friends told them to buy). I spent 6 5-hour days on line with HP/Compaq without ever speaking to an American until under my breath I threatened to email Carly Fiorina directly. Then oddly, I was given a tel# down in Cupertino.

Do yourself a favor - buy name brand foreign product like Lenovo, Toshiba or Averatec.... And buy foreign cars as well. Presuming you like quality that is...

jegan

2008 Sep 06 02:58 PM

[OPs 731]

All these comments are about quality and Customer Service. While you are correct, Dell’s CS is bad, this is not the point of this article.
The point of this article being, Dell having Factories. Lets break it down;
EU, need that one for tax breaks, but 2? And why mfg?
US, For the GSA accounts, the gov does not like computers assembled in China shipped to them without getting some value add in a secure country. OK, sure that one counts, but does it need to be a Dell site, no.
Brazil, only way to do it there.
India, probably a sane move for the market there.
Malaysia, really? Old school Dell.
Poland is probably Ireland’s replacement for the EU stuff.
Is seems to me someone at Dell fell a sleep in Operations. The rest of the industry made this move then 5 years ago and for some more then 10 years ago. For Dell, a supply chain expert, this was a huge miss. Wonder if the guy who runs Operation for the last 10 years is still there and fighting this move.

2008 Sep 07 12:38 PM

[ITGuy]

Comments on Quality/Cust Service merely point out it doesn't matter how cheap production is, where it's done or who does it if the product sucks! If the product is quality you will spend alot less in after sale support! If no product quality, I would rather not but DELL regardless of price. Low TCO requires few support issues.

2008 Sep 08 09:23 AM