Dell to buy $52 bln components from China

BEIJING Thu Mar 20, 2008 10:09am EDT

Iranians attend an electronics and computer exhibition presenting services by U.S. company DELL in Tehran October 29, 2007. REUTERS/Raheb Homavandi

Iranians attend an electronics and computer exhibition presenting services by U.S. company DELL in Tehran October 29, 2007.

Credit: Reuters/Raheb Homavandi

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BEIJING (Reuters) - Dell Inc DELL.O plans to buy $23 billion of components from China this year and $29 billion in 2009, helping it reduce costs while the company's main market, the United States, is facing recession.

The commoditization of computer hardware means competition is more a function of price and efficiency than quality and branding, making China a favorite place to source a broad range of goods, including electronic components.

"China is critical to Dell's global supply chain," founder and Chief Executive Michael Dell told reporters on Thursday.

"Dell will purchase $70 billion of computer-related supplies and equipment from China," he said, referring to total purchases over the 2007-2009 period.

The world's second-largest personal computer maker, Dell is far from alone in looking to China to reduce manufacturing costs and remain competitive.

Last November, Cisco Systems Inc (CSCO.O) said it would almost double its purchasing from Chinese suppliers over five years to $16 billion.

Cisco is the biggest maker of routers, switches and other equipment that make up the Internet.

Hardware makers such as Dell, Cisco and Hewlett-Packard (HPQ.N) (HP) could be hit hard by a U.S. economic downturn, Dell even more so because it relies on the U.S. for about half of its revenue, a much higher proportion than larger rival HP.

That makes China's role as a customer equally important to Dell, which saw a 54 percent rise in unit sales on the mainland during its last financial quarter.

"China is one of the most dynamic and fastest-growing economies in the world, and we've made significant business and social investments here in the past 10 years," said Michael Dell.

Dell's presence in China includes two manufacturing operations in the south, a product design centre in Shanghai -- one of the company's largest -- and a sales support centre in the north east for customers in Japan and Korea.

The company lost top market-share spot to HP in 2006 as consumers favored buying notebook PCs in stores, leading it to abandon last year a long-standing direct-only sales model.

It now sells PCs in retailers such as Wal-Mart Stores Inc (WMT.N), Carrefour SA (CARR.PA) in Europe and China's GOME Electrical Appliances Holding Ltd (0493.HK).

Dell was speaking at an event to celebrate 10 years of operations in China.

($=7.06 yuan)

(Reporting by Kirby Chien; Editing by David Hulmes)

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