Dell-icate Dealings
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Two seemingly unrelated events this month in two different parts of the world may foreshadow the future of computer maker Dell Inc.—and, more importantly, it could indicate what’s in store for thousands of the company’s local workers.
First, Round Rock, Texas-based Dell announced that it was closing a manufacturing plant in North Carolina, cutting nearly 1,000 jobs. Then technology-research firms disclosed that Taiwan-based Acer Inc. had displaced Dell as the No. 2 computer maker in the world.
The events highlight that as Dell expands beyond its hardware business to software, services, and network management, the need for facilities such as the one closing in Winston-Salem, North Carolina, diminishes—along with the profits they generate. The devices U.S. facilities produce can be made faster and cheaper elsewhere, which is one factor in Acer’s overcoming Dell in the rankings.
The trend was underscored by this month’s revelation that Dell plans to outsource its North Carolina jobs to Mexico and other countries.
The offshoring strategy is likely to continue as Dell attempts to reduce its operating cost by streamlining its business like rivals Hewlett-Packard Co. and Lenovo Group Ltd. That would require Dell to scale back its Texas manufacturing operations, said Roger Kay, president of Massachusetts-based Endpoint Technologies.
“They absolutely have to,” Kay said. “It’s just a matter of when and how much.”
Leslie Fiering, vice president of research for Gartner, Inc., paused at least 10 seconds before answering a question about the future of Dell’s Central Texas manufacturing.
“There are going to be some tough decisions that have to be made [for Dell] to remain economically and competitively viable on the world stage,” she said.
Smaller, but Still a Giant
Dell employs 78,000 workers compared with 78,900 at the end of fiscal 2009; about one-third of the company’s nontemporary workers are based in the United States, according to Dell’s filing with the U.S. Securities and Exchange Commission.
Also, the filing shows that the company cut nearly 10,000 jobs between fiscal 2008 and fiscal 2009.
In Central Texas, Dell employs 16,000 workers versus about 18,000 five years ago. The company doesn’t disclose the exact makeup of its workforce, but, according to the filing, Dell’s Austin workforce comprises various positions, from corporate executives to design and manufacturing professionals.
Last year, Dell cut 900 local jobs when it closed a desktop-manufacturing plant in North Austin. The Topfer Manufacturing Center was considered one of the company’s flagship factories and is where it refined its direct-sale, made-to-order business model in the 1990s.
Although revenue has grown in recent years, profits have shrunk. During its last fiscal year, Dell posted $2.4 billion in net income versus $3.6 billion during fiscal 2006.
Although Dell has made its mark as a producer of moderately priced computers for the masses, it is gradually shifting away from personal computers to a business that focuses on how to manage those PCs and the networks in which they operate.
CEO Michael Dell has said his company’s future will largely depend on offering the services and software that simplify increasingly complex networks. As a result, the company is in the process of completing the $3.9 billion acquisition of Plano, Texas-based Perot Systems Corp., the largest purchase in Dell’s history.
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