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

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".

General Motors Corp and Ford Motor Co posted double-digit declines in U.S. vehicle sales on Wednesday as uncertain economic conditions undercut a renewed incentives push by Detroit automakers and deepened an industry slowdown.

GM’s August sales tumbled 20.4 percent while Ford’s sales fell 26.6 percent, forcing the automakers to announce steep second-half production cuts, likely putting a drag on their financial results.

Signaling more weakness in the months ahead, the No. 2 U.S.-based automaker said it expected the second half of 2008 to be more challenging than the first half.

Toyota’s sales fell 9.4 percent while Nissan Motor Co Ltd surprised investors with a 13.6 percent increase in August sales.

The sales trends in August reflected the continued shift toward smaller, more economical passenger cars and away from large pickup trucks and sport utility vehicles.

U.S. demand for vehicles this year is expected to drop to near-decade lows, hurt by high gasoline prices, a housing market slump and tighter credit.

Ford now estimates 2008 U.S. auto industry sales to come in at the low end of its previous range of 14 million to 14.5 million units.

"We expect the second half of 2008 will be more challenging than the first half, as weak economic conditions and the consumer credit crunch continues," said Jim Farley, Ford group vice president of marketing.

Auto sales are a closely watched and early key indicator of consumer demand in the United States for big-ticket items, with investors focused on whether second-quarter economic growth will be sustained through the rest of 2008.

Overall for August, analysts expect U.S. auto sales to be down from 14 percent to 19 percent industrywide compared with a year ago, but up slightly from the 16-year low reported in July.

Ford estimates that the U.S. seasonally adjusted annual rate of industry sales, a key figure, will come in at about 14.1 million units including medium- and heavy-duty trucks.

Chrysler LLC was expected to post double-digit declines in U.S. auto sales when it reports sales later on Wednesday, according to analysts.

To boost sagging sales and clear out inventory, No. 1 U.S. automaker GM extended its employee-level pricing discount program by one month through the end of September and increased the number of 2009 model year vehicles carrying the offer.

GM, which has seen U.S. sales fall 18 percent through July, is under pressure to cut costs amid signs that industry sales were slack despite easing gasoline prices and aggressive incentives.

GM President and Chief Operating Officer Fritz Henderson told reporters in India on Tuesday that August was "another fairly tough month" and the automaker is not optimistic for the rest of 2008.

Overall, automakers increased their sales incentives about 7 percent in August from a year earlier, to an average of $2,642 per vehicle, according to Edmunds, which tracks auto sales trends. That figure is heavily weighted toward large trucks.

Year over year, Chrysler led major automakers in incentives with an average of $4,366 per vehicle followed by Ford with $3,443 on average per vehicle. Incentives at all the other automakers also rose in August, according to Edmunds.

Source:Reuters

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Commerzbank outlined its plans to cut 9,000 jobs and shrink investment bank Dresdner Kleinwort to a rump after buying Dresdner Bank, but investors were unhappy about the $14.5 billion deal.

Allianz is selling the bank in two tranches to create a stronger German number two behind Deutsche Bank. It is a deal that will trigger one of the biggest rounds of job cuts in banking since the markets crisis began.

It is also an admission from Allianz — after seven years and billions in losses — that it does not need its own bank in order to sell insurance to bank customers.

In Germany, investors were skeptical that Commerzbank Chief Executive Martin Blessing could make the deal work.

Dieter Ewald, a fund manager with Frankfurt Trust, which owns shares in Commerzbank said: "I think this is a real heavy-lifting exercise for Commerzbank and they might not make it."

Dirk Becker, an analyst with Landsbanki Kepler said: "It is good for Allianz. In the seven years they have owned Dresdner they have learned that they don’t have a clue about running a bank.

"But it is a huge integration. We will see in half a year that something will go wrong."

Commerzbank shares tumbled almost 12 percent, lopping more than $2 billion off its market value, after it said it would buy 60 percent of Dresdner now and the rest in 2009.

Meanwhile Finance Minister Peer Steinbrueck told reporters accompanying him on a trip to Beijing that "the government definitely did not exert any influence" in the sale of Dresdner Bank to Commerzbank, though it had been involved in the talks in an unspecified role.

The new group faces several challenges. For one, Commerzbank needs shareholders to pitch in the money to buy the remaining stake in Dresdner.

Should they say no, as they have to similar requests in the past, Blessing said it would take longer to wrap up a deal and reach the promised cost savings of almost 2 billion euros.

Much of the 9.8 billion euro purchase price will be paid to Allianz in the form of shares, leaving Europe’s biggest insurer with a stake of almost 30 percent in the new Commerzbank.

JOBS GLOOM

On Monday, the new owner outlined a blueprint to cut costs by slashing the combined group’s 67,000 staff.

More than half the savings will come from Dresdner Kleinwort, the struggling investment bank which has been further hobbled by the credit crunch.

Detailing plans to chop proprietary trading, leveraged loans and other key investment banking work, Commerzbank chief Blessing said: "This is familiar territory for us."

Commerzbank closed its own investment bank. Many now expect the winding up of the accident-prone Dresdner Kleinwort, which helped Allianz tot up $5 billion of writedowns during the credit crunch.

Alongside the staff who lose their jobs, the Dresdner brand will go, taking with it one of the best-known names in the City of London — merchant bank Kleinwort Benson, formed by merger in 1960 but with antecedents dating back to the 18th century.

It draws a line under an unhappy chapter for Allianz. Allianz deal broker Paul Achleitner and other architects of the original Dresdner takeover had hoped to sell bank accounts to Allianz customers as well as products such as car insurance at bank branches.

Last June, Reuters reported that Allianz had begun to consider its options for Dresdner.

But finding a buyer has not been easy, mostly because of Dresdner’s investment bank, which one insider said was a business Allianz had never intended to keep after it bought Dresdner for 24 billion euros in 2001.

"It was clear from the start to Allianz that they did not want to keep the investment bank," this person said. "But when the time was right to sell it — at the top of the investment banking boom in late 2006 — they fell asleep at the wheel."

The sale will give the new Commerzbank 11 million retail customers in Germany, a market where margins are thin thanks to the dominance of state not-for-profit lenders, and secure its position at the tail-end of Europe’s top 20 banks.

Source:Reuters