News from the East-Dell happy to defy millennium bug
ERIC LAI
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He (Michael Dell) also hinted that, like EDS and now HP, Dell could get into the service provision business.
"Our first priority is to sell server hardware to those service providers," he said. "That doesn't mean that we could not also go into that business, too."
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Tuesday, June 8, 1999
BUSINESS
Source:scmptechnopost.
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Renowned for keeping profits up by keeping its inventory of personal computers down, Dell Computer plans to tempt fate come December 31 this year.
The PC maker, while not a true build-to-order manufacturer, holds inventory of its PCs worldwide to cover just six days.
Other big PC makers, such as Hewlett-Packard (HP) and Compaq, in an attempt to forecast customer demand, typically hold four to six weeks of inventory.
They, too, are attempting to move to a build-to-order model to reduce exposure to dips in customer demand - which force companies to slash prices and often sell computers at a loss.
It is a dilemma that Dell, for the most part, avoids.
But its margin for error could prove razor-thin if the millennium bug acts up - suppliers' computer systems could crash, causing a shortage of needed components; or factories could be at risk from electrical blackouts from operational failures at power plants.
Dell, which makes its PCs destined for Hong Kong and the mainland at its Xiamen plant - and supplies the rest of Asia from its Penang, Malaysia, factory - planned to have a few more PCs in stock at January 1, chief executive Michael Dell said.
"We will hold more, but I wouldn't expect it to be dramatically more," he said, declining to give specifics.
Mr Dell said the company's Asian suppliers were in order and prepared against the onslaught of Y2K-related problems.
"It appears to us that our supplier base is in pretty good shape," he said.
"The biggest issues we worry about are the infrastructure issues, such as logistics and air transport."
Big customers can pre-order certain models of Dell PCs - which the company calls its Marathon Configurations - until February.
Dell guarantees those PCs will be delivered within its normal seven days.
Mr Dell also was optimistic about the fast-growing mainland market.
Ranked eighth in the first quarter, according to IDC, Dell is still a small player in the market, but it hopes to sell US$100 million worth of PCs this year in the mainland.
"We still have a very small share in China, so we are optimistic about future opportunities for growth," he said.
Dell officials downplayed the beneficial effect from the mainland's pending entry into the World Trade Organisation - which probably would require Beijing authorities to first reduce tariffs on imported goods, including computers and components.
"When you look at manufacturing costs, the content of our machines is very local," said David Chan, Dell's president for Greater China.
To better service big business customers in Greater China, Dell is setting up an application services centre in Shanghai in the autumn.
It will allow companies to test how well Dell machines run enterprise software such as databases and enterprise resource-planning applications.
In the long term, Dell is defending its cost lead in PCs, which is slowly eroding as other PC makers streamline manufacturing and supply operations.
Mr Dell said PCs would not become totally low-margin commodity items soon and rather that "our business has really moved beyond shifting boxes - not all the way to providing solutions, but somewhere in the middle".
About 80 per cent of the PCs that Dell sold brought additional revenue through service contracts.
Dell said it would increase its move into provision of services, from which it derives 10 per cent of its revenue.
The company also is moving aggressively into selling more profitable products, such as storage hardware for big businesses.
But Mr Dell derided the notion - put forward by e-commerce evangelists such as HP and Oracle - that enterprises would not buy products in the future but instead would outsource much of their IT operations to service providers, who would become the big customers for IT vendors' products.
"I wouldn't say the whole world's going there," Mr Dell said. "People are outsourcing e-mail, and we will see more and more applications outsourced. But that does not mean every company will."
He also hinted that, like EDS and now HP, Dell could get into the service provision business.
"Our first priority is to sell server hardware to those service providers," he said. "That doesn't mean that we could not also go into that business, too." |
