Business, Business News - Saturday, September 6, 2008 20:44 - 0 Comments
Dell outsourcing plan may be tough to execute
Dell Inc plans to make fewer computers itself and rely on contract manufacturers to cut costs, but the company could find it hard to get rid of its North American factories at a good price.
The world’s second-largest PC maker said in April it would outsource more manufacturing, and the Wall Street Journal reported on Friday that Dell was trying to sell most of its factories within the next 18 months.
Analysts said the most likely buyers of Dell’s plants are big contract manufacturers, most of which are based in Asia because production costs are lower there.
They questioned how much cost savings Dell can get, since it would likely have to give the buyer of its plants an accompanying personal computer manufacturing deal.
"They will have to lock in a long-term production contract as well because no one will buy facilities unless there’s business to go with it," Cross Research analyst Shannon Cross said. "I just don’t know how much they get for them. They may also transfer the manufacturing assets to a partner."
Dell wants to boost its profit margins to levels enjoyed by rivals such as Hewlett-Packard Co and pour some savings into new product development, analysts said.
Some 58 percent of Dell’s 5 million square feet (465,000 sq m) of manufacturing and distribution space is in the United States, according to regulatory filings. Twenty-two percent is in Asia and 20 percent is split between Ireland and Poland.
It has manufacturing plants in Brazil, Florida, North Carolina, Ohio, Tennessee and Texas.
"Competitors have done it over the years. They have migrated to outsourced manufacturing," Cross said, citing HP, the world’s top PC maker. "It probably doesn’t give them (Dell) an advantage because their competitors are already there."
The Journal, citing people familiar with the matter, said Dell had approached contract computer manufacturers with offers to sell the plants.
Dell declined to comment except to reiterate that the company has eyed more outside manufacturing help.
"We plan to expand our use of original design manufacturing (ODM) partnerships over time to deliver products faster and better serve customers in certain segments and geographical areas," Dell spokesman David Frink said.
NEW BUSINESS MODEL
Dell’s factories were originally tailored for a market that was driven by corporate customers ordering large volumes of desktop PCs. But over the past three years, growth has shifted to laptops sold to consumers at retail stores.
The Round Rock, Texas-based company has lagged behind competitors in coming up with a streamlined system to build portable PCs. Contract manufacturers can generally produce PCs for less money because their entire operations are focused on finding production efficiencies, as opposed to large firms like Dell, which must balance marketing and other considerations.
Analysts said they believed Dell would gradually shift more production abroad.
"From a procurement perspective and from a design perspective, (Asian contract manufacturers) are just as good. North America is not exactly a low-cost area," said analyst Richard Kugele of Needham & Co. "They’re starting to embrace the Asian ODMs a lot more."
The U.S. plants could be sold to companies outside of the PC industry and rebuilt to make other product types, he said.
Hon Hai Precision Industry unit Foxconn of Taiwan recently bought plants from Sanmina-SCI Corp, which sold assets of its PC business and associated logistics services located in Hungary, Mexico and the United States.
Spokesmen for contract manufacturers Flextronics International Ltd and Benchmark Electronics Inc were not immediately available for comment. A representative for Sanmina-SCI declined to comment.
Dell broke away from its exclusively direct-sales model last year to offer computers in retail outlets, after losing the title of top PC maker to HP.
It accelerated its cost-cutting drive this year, saying it would cut more jobs than the 8,800 it previously targeted as it seeks to trim annual expenses by at least $3 billion by 2011.
Source:Reuters
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Personal Finance, Personal Finance-News - Sep 5, 2008 18:58 - 0 Comments
US jobless rate near 5-year high
The unemployment rate in the US is at its highest level in nearly five years after a higher-than-expected 84,000 jobs were lost last month.
The jobless rate has risen to 6.1%, the highest since December 2003, adding to concern about the US economy and its ability to stave off a recession.
In a further blow, the Labor Department revised upwards job loss figures for each of the past two months.
The Federal Reserve said earlier that economic activity remained "weak".
A separate report by the Mortgage Bankers Association said that almost one in ten US homeowners were behind with their mortgage payments or was in foreclosure procedures.
The 9.2% default rate between April and June was up from 8.8% in the previous quarter, and nearly double the rate one year ago.
‘Convincing evidence’
The number of jobs lost last month was significantly higher than the 75,000 forecast by economists.
All sectors of the economy were affected with manufacturing worst hit, shedding 61,000 jobs.
The labour market has worsened noticeably in recent months, reflected by the fact that it is now apparent that more jobs were lost in June and July than was previously thought.
Revised figures show that in June, 100,000 jobs were lost while in July 60,000 jobs disappeared. This was up from the 51,000 figure initially forecast for both months.
In the first eight months of 2008, 605,000 jobs have been lost.
Employers have now reduced their payrolls for eight straight months, with the dramatic downturn in the housing market and the credit crunch hurting all sectors of the economy.
"This is more convincing evidence that the economy is still in trouble," said Gary Thayer, senior economist at Wachovia Securities.
"The economy is clearly deteriorating."
Political focus
Both candidates in November’s Presidential election are under pressure to come up with concrete proposals to help the growing number of people out of work and families battling against rising living costs.
Although the US economy grew a robust 3.3% in the second quarter, businesses are struggling to cope with the high cost of raw materials and energy, fragile consumer confidence and weaker export markets.
The Federal Reserve, which meets to decide on interest rates next week, has warned that the US is facing the twin threats of weak growth and rising inflation.
The bleak employment picture means the Fed is unlikely to raise rates in the foreseeable future while further cuts seem equally unlikely against a background of rising inflation.
"The jobs number is weak again but we think this probably is not the time to panic," said Steve Goldman, strategist at Weeden & Co.
Story from BBC NEWS
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Free eBooks - May 15, 2008 20:24 - 1 Comment
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Business, Business News - Sep 6, 2008 20:44 - 0 Comments
Dell outsourcing plan may be tough to execute
Dell Inc plans to make fewer computers itself and rely on contract manufacturers to cut costs, but the company could find it hard to get rid of its North American factories at a good price.
The world’s second-largest PC maker said in April it would outsource more manufacturing, and the Wall Street Journal reported on Friday that Dell was trying to sell most of its factories within the next 18 months.
Analysts said the most likely buyers of Dell’s plants are big contract manufacturers, most of which are based in Asia because production costs are lower there.
They questioned how much cost savings Dell can get, since it would likely have to give the buyer of its plants an accompanying personal computer manufacturing deal.
"They will have to lock in a long-term production contract as well because no one will buy facilities unless there’s business to go with it," Cross Research analyst Shannon Cross said. "I just don’t know how much they get for them. They may also transfer the manufacturing assets to a partner."
Dell wants to boost its profit margins to levels enjoyed by rivals such as Hewlett-Packard Co and pour some savings into new product development, analysts said.
Some 58 percent of Dell’s 5 million square feet (465,000 sq m) of manufacturing and distribution space is in the United States, according to regulatory filings. Twenty-two percent is in Asia and 20 percent is split between Ireland and Poland.
It has manufacturing plants in Brazil, Florida, North Carolina, Ohio, Tennessee and Texas.
"Competitors have done it over the years. They have migrated to outsourced manufacturing," Cross said, citing HP, the world’s top PC maker. "It probably doesn’t give them (Dell) an advantage because their competitors are already there."
The Journal, citing people familiar with the matter, said Dell had approached contract computer manufacturers with offers to sell the plants.
Dell declined to comment except to reiterate that the company has eyed more outside manufacturing help.
"We plan to expand our use of original design manufacturing (ODM) partnerships over time to deliver products faster and better serve customers in certain segments and geographical areas," Dell spokesman David Frink said.
NEW BUSINESS MODEL
Dell’s factories were originally tailored for a market that was driven by corporate customers ordering large volumes of desktop PCs. But over the past three years, growth has shifted to laptops sold to consumers at retail stores.
The Round Rock, Texas-based company has lagged behind competitors in coming up with a streamlined system to build portable PCs. Contract manufacturers can generally produce PCs for less money because their entire operations are focused on finding production efficiencies, as opposed to large firms like Dell, which must balance marketing and other considerations.
Analysts said they believed Dell would gradually shift more production abroad.
"From a procurement perspective and from a design perspective, (Asian contract manufacturers) are just as good. North America is not exactly a low-cost area," said analyst Richard Kugele of Needham & Co. "They’re starting to embrace the Asian ODMs a lot more."
The U.S. plants could be sold to companies outside of the PC industry and rebuilt to make other product types, he said.
Hon Hai Precision Industry unit Foxconn of Taiwan recently bought plants from Sanmina-SCI Corp, which sold assets of its PC business and associated logistics services located in Hungary, Mexico and the United States.
Spokesmen for contract manufacturers Flextronics International Ltd and Benchmark Electronics Inc were not immediately available for comment. A representative for Sanmina-SCI declined to comment.
Dell broke away from its exclusively direct-sales model last year to offer computers in retail outlets, after losing the title of top PC maker to HP.
It accelerated its cost-cutting drive this year, saying it would cut more jobs than the 8,800 it previously targeted as it seeks to trim annual expenses by at least $3 billion by 2011.
Source:Reuters
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