Dell Plans to Sell Its Computer Factories Worldwide, WSJ Says

Sept. 5  -- Dell Inc. is seeking to sell all of its manufacturing plants worldwide and has approached contract computer manufacturers, the Wall Street Journal reported today, citing people familiar with the matter.

The proposed factory sales, intended to slash costs, mark a significant shift from Dell's long-standing strategy of making its own products, the Journal said. Instead, Dell plans to have contract manufacturers make all its computers, the paper reported.

Dell, the world's second-biggest maker of personal computers, is seeking to raise profitability after reporting earnings that missed analysts' estimates as it cut prices to take market share from industry leader Hewlett-Packard Co. Selling its production sites to focus on sales and marketing may aid efforts by the Round Rock, Texas-based company to expand its product range.

``As the company moves away from its direct sales business model, it needs to offer a wider range of products and respond more quickly to market demand,'' said Wang Wanli, a technology analyst at HSBC Holdings Plc in Taipei. ``Outsourcing production to third-party manufacturers will help them become more flexible.''

Dell would ensure that any contract manufacturer who purchased a factory would agree to make hardware for the company, according to the Journal report. Dell may sell all of its plants within 18 months, the newspaper said.

Last month, Dell introduced new notebooks with longer battery life aimed at business users. The company also started selling a slimmer laptop weighing 2.2 pounds (1 kilogram) after Hewlett-Packard offered a similar model in June.

Now Available In Stores

Dell, which in 2007 abandoned selling PCs only via telephone and the Internet, has forged agreements to sell its computers through retailers including Wal-Mart Stores Inc. in the U.S., Gome Electrical Appliance Holdings Ltd. in China, Carrefour SA in Europe, Bic Camera Inc. in Japan, and the Croma chain of electronics stores of India's Tata group.

T.R. Reid, a Singapore-based Dell spokesman for Asia Pacific and Japan, declined to comment on the report, citing company policy not to comment on speculation.

``We have said repeatedly there are opportunities to use third-party manufacturers to reduce costs and increase efficiency,'' Reid said. Determining ``how best to do that is something that is in process now.''

Dell increased PC shipments 21 percent in the quarter ended June 30, compared with Hewlett-Packard's 17 percent, and 15 percent for the market overall, according to research company IDC. The second-ranked PC maker cut prices by an average of 7 percent in the three months ended Aug. 1, as competition intensified, it said in a regulatory filing yesterday.

Boon For Taiwan Suppliers

Suppliers including Hon Hai Precision Industry Co., Compal Electronics Inc. and Quanta Computer Inc. will benefit from higher orders if Dell sells its own production facilities, HSBC's Wang said.

Hon Hai hasn't had any discussions with Dell to buy the company's facilities, Edmund Ding spokesman for the Taipei-based company said by phone today.

Elton Yang and Carol Hsu, spokesmen for Taoyuan, Taiwan-based Quanta, the world's largest notebook maker and a supplier to Dell, didn't answer calls today.

Dell last week reported fiscal second-quarter profit fell 17 percent to $616 million, missing analysts' estimates, as profit margins shrank after price cuts.

September 5, 2008 04:22 EDT