Dell is tightening its belt by another notch. As part of its continuing effort to cut costs and increase its competitiveness, the computer maker is reportedly considering selling its factories.
An article in Friday's Wall Street Journal reported that, according to unnamed sources, Dell has been approaching contract computer manufacturers in recent months "with offers to sell its plants." One source told the newspaper that the Round Rock, Texas-based company expects to sell most, if not all, of its factories "within the next 18 months."
Unsold factories would simply close, and Dell would get its computers made by contract manufacturers. The Journal report noted that ex-Dell factories could be first in line for contracts to continue making machines for Dell -- an obvious sweetener to any possible deal.
Shares Drop 18 Percent
For more than a year, Dell has been trying to find ways to reduce its expenses and expand its distribution. The reported move toward additional cost-cutting comes as Dell struggles to regain its financial footing and competitive position. Last week, it reported quarterly profits that led to shares dropping more than 18 percent.
The move to close its factories is an indication of how seriously this cost-cutting has become, as Dell once prided itself on highly efficient, build-on-demand PC manufacturing tailored to customer requirements. In ads and publicity, Dell touted that a customer's computer was built after the order had been placed -- often within hours of the order. This just-in-time approach minimized any unsold inventory.
And, by not having to deal with retail channels, Dell also was able to maximize channel efficiency. But, for laptops and other computer products, a number of customers prefer to buy in a brick-and-mortar store, where they can see the product, talk to a real person, and return it if there is a problem. As a result, Dell is now offering products through such retailers as Best Buy.
Selling Factories in the United States
As the market for large numbers of desktop computers sold to enterprise customers has begun to change to laptops sold through retail channels, Dell's system of building PCs and selling them online has had to be retooled. Key competitor Hewlett-Packard, for instance, reportedly builds more than half of its laptops in contract factories owned by others. HP has eclipsed Dell as the number-one maker of computers on the planet.
Dell currently has some of its laptops partially built in Asian factories, and then the unit is completed in a Dell factory. To reduce this two-step process, the company has begun to have some of its laptops -- the fastest-growing computer product -- built entirely in contract factories.
Dell's factories in the United States include facilities in Texas, Tennessee, North Carolina and Florida. International factories are located in Ireland, India, China, Brazil, Malaysia and Poland.
The task of selling U.S.-based factories to contract manufacturers, many of whom are based in Asia, is not easy. Labor costs are higher here, there are often local requirements by governments, and, with many computers being manufactured in Asia and elsewhere, there could be a less-than-optimal stream of contract work here.