On being beset by a drop in quarterly earnings even after notching up higher sales, computer hardware maker Dell Inc. is reportedly looking to sell its factories as part of a strategy to overhaul its production model to cut more than $3 billion in annual costs within the next two years.
Dell has been under growing pressure to increase profitability in a more competitive PC landscape. Dell shares plummeted more than 13 per cent last Friday after the Round Rock computer maker reported weaker-than-expected quarterly earnings of $616 million, down from the $746 million a year ago. (See: Dell reports earnings drop in spite of increased sales; blames self-inflicted price cuts)
The Wall Street Journal reported yesterday that Dell could sell its factories within the next 18 months to contract manufacturers, most of which are based in lower-cost Asian countries. Dell has about 60 manufacturing or research facilities in 20 countries.
Selling the plants, then contracting with the buyer to supply computers, would remove a linchpin of Dell's strategy and bring it more into line with the business model of its competitors, which already outsource production. Dell started expanding outsourcing last year, the paper said.
Dell has factories in Texas, Tennessee, North Carolina, Florida, Ireland, India, China, Brazil, Malaysia and Poland, according to the Journal.
The sale of its factories would suggest Dell is still groping for ways to accomplish its goal of improved profits despite the return last year of founder Michael Dell to the role of chief executive.
Venancio Figueroa, a Dell spokesman, said the company wouldn't comment on "rumors and speculation." Figueroa repeated that Dell has said it wants to work more closely with manufacturers in order to "reduce costs and make products in a timely fashion."
Dell has made cutting costs and expanding into new markets part of its mantra since Michael Dell reclaimed his spot as the company's chief executive in January 2007 after being absent from that job since 2004. (See: Michael returns to lead Dell)
And over the past year, Dell has launched a push into the retail sector in the US and international markets, which has put its computers on the shelves at stores such as Best Buy Co., Staples and Wal-Mart.
Just this year, Dell opened new manufacturing facilities in North Carolina and Poland, and it is believed the company received several tax breaks and other benefits for locating the plants in those areas.
Many high-tech US companies have outsourced manufacturing capabilities over the past decade in response to higher competition and falling profits. And Dell, the world's No. 2 computer maker, is under pressure to improve profits after several years of mostly disappointing results. (See: Dell India starts manufacturing project in Tamil Nadu)