Dell reportedly moves forward with outsourcing plan

Reports say PC giant may sell all of its factories in 18 months

By Dave Hannon and Maria Varmazis -- Purchasing, 9/5/2008 8:57:00 AM

The Wall Street Journal reports this morning that PC giant Dell is serious about a previously suggested supply chain overhaul that includes selling its manufacturing facilities and leveraging contract manufacturers and electronics manufacturing services providers.

In May, Purchasing.com reported that Dell announced plans to close one of its two Austin, Texas manufacturing plants and would to outsource more manufacturing to contract manufacturers in low-cost regions as part of a broader $3 billion cost-reduction plan. At that time, Mike Cannon, Dell’s president for global operations who came to Dell from EMS firm Solectron, said the Round Rock, Texas PC maker will “have more and deeper partnerships with ODMs (original design manufacturers) and EMS (electronics manufacturing services) companies…I’ve been in that business. I know the capabilities of those companies and what they can do.”

Today’s Journal story says a person briefed on Dell’s plan expects the company to sell most—and possibly all—of its factories within the next 18 months. The story also says any former Dell plant sold to a contract manufacturer would be most likely contracted into making more products for Dell. If this holds true, it is unclear how exactly Dell's foray into contract manufacturing would impact capacity in the market.

Dell values all its property, plant and equipment at $2.6 billion. Lou Miscioscia, an analyst at Cowen & Co., tells the Journal that Dell isn't likely to reap a financial windfall from selling factories. Instead, the benefits of shedding factories would come over the long term, through reduced spending.

Wang Wanli, a technology analyst at HSBC Holdings, told Bloomberg that as Dell moves away from its direct sales business model, it needs to offer a wider range of products and respond more quickly to market demand, adding "Outsourcing production to third-party manufacturers will help them become more flexible."

In July, Purchasing.com reported that Dell’s worldwide PC shipments increased 21.9% in the second quarter and its market share reaching 15.6%, fueled by its expansion into retail and other indirect channels.

See also: Dell to close Texas plant, outsource more manufacturing to EMS firms

See also: Former Dell CPO Garvin provides insights on driving procurement success