Desktop Computers to Be Assembled at New Dell Plant in Winston-Salem, N.C.

Dec. 23–Local businesses and consumers planning to buy Dell Inc. desktop computers late next year could be end up with computers assembled in Winston-Salem.

The 500,000-square-foot plant is scheduled to open next fall and will serve the computer giant’s business and consumer customers on the East Coast.

David Frink, a Dell spokesman, said that workers will be assembling the company’s Dimension and OptiPlex desktop computers at the plant.

Dell’s Dimension computer line is targeted at small businesses and for home use, while the OptiPlex line is aimed at corporate, small business and institutional customers.

A complete Dimension desktop-computer package, including a monitor and color printer, was priced starting at $499 recently on the Dell Web site.

Workers at the new plant in Winston-Salem will produce only the computers, not monitors or keyboards, Frink said.

Workers will assemble the computers from parts sent to the plant from the company’s suppliers, some of which are expected to move into this area.

“Dell is primarily an assembler and a marketing company,” said Andrew Whinston, a professor in the McCombs School of Business at the University of Texas at Austin and an expert on Dell. “They cut sharp deals with their suppliers.”

The company’s suppliers, with some exceptions, open operations near Dell factories. That way, delivering parts is efficient “and it’s at most a truck ride across town to Dell’s loading dock,” said Tim Ruefli, who is also a Dell expert and professor in the McCombs school at Texas.

Suppliers are tied directly into Dell’s information system and they can see how many of its parts are in Dell’s inventory and how many are on the production line. That way the suppliers can quickly respond to production needs.

The makers of the computer’s parts, such as the disk drives and mother boards — the main board in a computer — are all hooked into the system.

“It’s a very efficient system,” Ruefli said.

That efficiency, the falling cost of computer parts and the ability to get good prices from suppliers, are some of the factors that keep pushing the price for personal computers lower and yet permit Dell to maintain healthy profit margins.

Dell’s costs are about 10 percent to 12 percent lower than its rivals, Ruefli said.

Dell is able to keep its costs and the prices for its computers low because its costs are lower and it sells directly to customers via the Internet and over the phone, thereby eliminating a retail markup.

“They decided early not to go through the retail stores,” Whinston said. “They decided to maintain control of the selling function.”

The company does have about 50 kiosks around the country, mostly in malls such as Hanes Mall, where customers can order computers and other products, Frink said. The kiosks do not carry an inventory of computers.

Early on, Dell envisioned that someday consumers would not need to see and test-drive computers in a store and they would be comfortable shopping for one online or over the phone.

Dell, based in Round Rock, Texas, was founded by Michael Dell in 1984 and quickly became a success. It went public in 1988 and by 1992 it was included in the Fortune 500 of the world’s largest companies.

The company became the No. 1 computer-maker in the world in 2001, passing Compaq Computer Corp. Compaq was bought by Hewlett-Packard Co. in 2002.

In the third quarter, Dell’s worldwide market share in terms of computers shipped was 16.8 percent, according to Gartner Inc., a research company. Hewlett-Packard was next at 15 percent.

Dell’s main rivals in the personal computer business are Hewlett-Packard — which sells computers under the Hewlett-Packard and Compaq brand names, and International Business Machines Corp.

But IBM said this month that it was selling a majority stake in its personal-computer business to China’s Lenovo Group.

Analysts said that the proposed sale could provide a boost to Dell and other computer makers, but there are risks to those companies’ personal-computer businesses as well.

“This could provide opportunities to penetrate IBM’s customers,” Joel Wagonfeld, an analyst at First Albany Capital Inc., wrote in a report. “However, it could also be a negative for the overall PC market because Lenovo, which is already accustomed to lower margins than its major U.S.-based competitors, will gain additional scale and market power.”

In addition to desktop computers, Dell makes a host of other products, including laptop computers, network servers, and printers. For its latest fiscal year, which ended on Jan. 30, Dell reported a profit of $2.6 billion on revenue of $41.4 billion.

For the three months ended Oct. 29, the company’s net income was $846 million. Revenue was $12.5 billion.

“Our takeaway from the earnings report and conference call is that the Dell revenue and earnings growth trajectory has not slowed and shows no signs of slowing in the near future,” Les Santiago, an analyst with Piper Jaffray, wrote in a report after the earnings release.

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