Dell's Factory Sales: End of an Era

Dell (DELL) is reportedly trying to dump its manufacturing facilities across the globe in a turnabout that indicates it has no discernible edge in making PCs any more.

According to the Wall Street Journal:

Dell has approached contract computer manufacturers with offers to sell the plants. One person briefed on the plan said he expects the company to sell most — and possibly all — of its factories “within the next 18 months.” Other factories could close, this person said. Dell would enter into agreements with the contract manufacturers to produce its PCs.

For a company that once used its supply chain as a weapon the move is stunning. It also shows how other companies – notably HP (HPQ) – emulated Dell’s model and squashed it. The message: There’s no future in selling direct and customizing custom PCs on the fly. And certainly Dell has hit the efficiency wall.

Today, Dell is a company with falling profit margins and high labor costs. The rub: It’s unclear whether contract equipment manufacturers would want to buy Dell’s manufacturing hubs. Do contract manufacturers really want to take on Dell’s capacity? It’s possible that Dell may have to do more dramatic layoffs to dress these factories up for a sale. Dell has facilities in Austin, Texas; Winston Salem, NC; Nashville, Tenn.; and additional factories in Ireland, Poland, China, Malaysia and India.

Dell’s move to outsource could give it an initial boost, but the bet going forward would be that the PC giant can navigate the retail sales channel well–something that’s not proven yet. HP, Apple (AAPL) and others rely heavily on contract manufacturers so it’s not like Dell can’t do it. But the move is the end of an era.

Comments

[ziz:]

Hon Hai / Flexconn are building a global size mega plant at Bac Ninh mega site (40km north of Hanoi) in Vietnam to rival the current Longhua plant in in Shenzhen. They also have plans for more Chinese plants in Wuhan (central China) and Huaian (430km from Shanghai), whch are also expected to be larger than the Longhua facilities (based on land area).

The US Jabil Corporation (US) who manufacture circuit boards for Cisco Systems Inc, Hewlett-Packard Company, IBM, Marconi Communication plc, Network Appliance, NEC Corporation, Nokia Corporation, Quantum Corporation, Royal Philips Electronics and Valeo S.A., and Intel are both developing major plants in the Saigon Hi-Tech Park .

There will be little enthusiasm for Dell's 2nd hand plants.

2008 Sep 07 09:27 AM

[Depressedal...:]

Hmmm!! Selling out all their computer plants in order to "remain competitive." Trying to purchase Yahoo to compete with Google and take some of the "advertising market" away from Google. Saddled with a multimillion loss in sales from the "despised" Vista software that it tries to force down the throats of its consumers and ignoring all the signatures of its loyal customers to save Windows XP from being sent to oblivion! Not to mention that it already lost two antitrust lawsuits in the European Courts and two more are expected to be heard! Microsoft lost 65 million dollars in the first lawsuit and 165 billion dollars in the second lawsuit! They are still in the process of appealing those two verdicts. But as they say....good luck! Microsoft should have paid more attention to the saying, "When in Rome, do as the Romans do." Taking his cut-throat business purposes overseas and failing to know the business laws of the European nations has cost him dearly! Coupled with at least four lawsuits regarding infringement of patents here in the US. I would say that the handwriting is on the wall and not only has Microsoft been unable to deliver "new technology" but now is no longer in the black financially! The rooster is coming home to roost and Microsoft which was the number 4th largest corporation in the world in the year 2004 is now the 59th largest corporation in the world as of 2008. Because of the factors mentioned above, the corporation could very well be sold out to another corporation because it is headed to the path of bankruptcy!

2008 Sep 07 12:31 PM

[mollytjm:]

what a mess Dell got itself into. it's major mistake was outsourcing its tech support to the lowest bidder. this lost the loyalty of nearly everyone, since people bought Dell previously knowing it had good tech support. If you constantly make your customers unhappy, it's a pretty sure bet they'll go elsewhere. Dell's mistakes and Microsoft's let Apple head to the top.

2008 Sep 07 01:04 PM

[Hayweed:]

Maybe Michael Dell should sell the assets and give the money back to the shareholders. I am sorry, that is whay Michael Dell said about Apple before Apple's market cap became 3 times the size of Dell's

Apple Maket cap 139.9 billion
Dell Market Cap $39.5 billion

Dell's new motto

Twice the sales for half the profit

Dell $16 billion in sales with $500 million profit last quarter
Apple $8 billion in sales with $1 billion in profit last quarter

2008 Sep 09 08:10 AM

[nyorker:]

mollytjm - YOU HIT THE NAIL ON THE HEAD !!!!!!

2008 Sep 09 01:54 PM

[KenC:]

Actually, while the comments people have made are true, the biggest fact is that the market has changed. People have been transitioning from desktops to laptops for a while. While desktops could be bought sight unseen, as they are stuck under a desk, laptops must be seen and handled to make a sale. As long as desktops ruled, Dell was the king, as it could use its supply chain to make the cheapest desktop and get it to you the fastest. Now that laptops rule, Dell's approach isn't ideal. You need retail points of sale, and you need inventory. A fast supply chain isn't as critical when people are buying in-stock inventory. So, all those other missteps aside, the biggest factor in Dell's reason for selling its factories is that their market advantage has disappeared as laptops have taken over.

2008 Sep 11 06:15 PM