DELL to Produce Laptops at Home...FYI...
<<August 16, 1999
Dell to produce laptops at home
Tom Fowler Austin Business Journal Staff
Dell Computer Corp. hopes that moving some of its notebook computer manufacturing from Taiwanese contractors to its own plants around the world will help cut prices and boost market share.
Earlier this summer, Dell's low-end notebook, the Latitude CPt, started rolling off a converted Optiplex desktop computer line at one of the company's Metric Boulevard sites in Austin instead the Taiwanese assembly sites the company had paid to handle the work.
Similar work was moved to Dell plants in China, Malaysia and Ireland soon after. In the past, the Latitude CPt was built exclusively by Taiwan's Quanta Computer Inc.
The move will cut inventory -- one of the biggest cost burdens in the electronics industry -- shorten delivery times and cut shipping expenses, says Rob Crawley, communications manager for the Latitude product line. It all adds up to lower costs for customers and higher profit in a laptop market with increasingly tight margins.
The Latitude CPt starts at $1,884. Competitors sell models with similar configurations for between $1,300 and $2,000.
"We will still use our partners in Taiwan to build the [higher end] Latitude CPi and other models," Crawley says. "With the growth in the notebook space, we needed the extra [manufacturing] bandwidth."
Adding the new product line to the Austin plant didn't require more employees, Crawley says, just retrofitting of existing production equipment.
Dell's aggressive move in the laptop market is even more noteworthy, considering the company's rocky history with the machines. In the past, Dell built its own laptops, but by 1993 the machines had earned a poor reputation for quality. The company lost $39 million on that venture before it switched to Taiwanese manufacturers.
By 1996, Dell was sixth in worldwide laptop sales. Now, it solidly is among the top four, along with Toshiba, IBM Corp. and Compaq Computer Corp., in a market worth an estimated $42.2 billion.
Industry secret
The fact that few companies build their own notebook computers long has been one of the computer industry's dirty little secrets. Scott Miller, a principal analyst with the San Jose, Calif.-based Dataquest Inc. research firm, says Taiwan built up the expertise to produce notebooks over the past 10 years, making it a powerhouse in laptop manufacturing.
Since notebooks tend to be more complicated to build than desktop computers, going through a Taiwanese manufacturer generally has been the least expensive avenue to enter the market, Miller says.
"There haven't been many vendors who have done much of anything else than add their name to the machines," Miller says. "They had engineers work with the manufacturers on design, but there wasn't a whole lot of customization."
Dell's mastery of the direct manufacturing model, which builds customized computers quickly while keeping a minimum amount of parts on hand, makes it one of the few notebook companies able to cut costs, Miller says.
"The name of the game is reducing sources of friction in the supply chain, so the closer you can move the assembly process to the customer, the better," Miller says. "I don't think an IBM, Compaq or Toshiba would gain the same kind of advantage by doing that themselves that Dell can. Dell is simply leveraging one of its strengths."
Dell also is taking other measures to better control its supply chain for its entire line of notebooks, including purchasing the majority of its notebook screens directly from the manufacturers, bypassing resellers.
"We've championed the direct model on the desktop, but it is still relatively new to the notebook line," Crawley says. "With the display and the processor being two of the most expensive components in a notebook, any reductions in time we can make in getting hold of those parts needs to be looked at."
Dell's growing involvement in all aspects of its notebook computer production is supported by Samsung Electronics Co.'s new flat panel display service center in Austin. The center, in the Cameron Creek Business Park in northeast Austin, is the company's only U.S. repair site and should help companies such as Dell improve the turn-around time on laptop repairs.
Top tier
Dell is one of the top four notebook manufacturers, periodically swapping places with Toshiba, IBM and Compaq, says Katrina Dahlquist, a senior research analyst with Boston-based International Data Corp.
Dell sold about 852,000 notebook computers worldwide in 1998, including 248,000 high-end Inspiron machines and 604,000 lower-cost Latitudes. In the first quarter of 1999, the company ranked third behind Toshiba and Compaq, but for the second quarter it slipped to fourth with 9.9 percent of the market.
"There's so little difference between them all, fewer than 5,000 machines, so it's not that significant," she says.
"Dell has reached a point where they won't have huge leaps and bounds, but will grow incrementally," Dahlquist says. "They've produced very good products, and a lot of our surveys on end users indicate they have plans to purchase Dell notebooks." >>
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