UPDATE 2-Dell says to outsource more work to subcontractors
(Adds executive comments on reseller partnerships)
ROUND ROCK, Texas, April 2 (Reuters) - Dell Inc (DELL.O) said on Wednesday it plans to outsource more work to contract manufacturers to reduce manufacturing costs and will strengthen ties with resellers to reach more customers.
Taken together, the comments by executives at Dell's first analyst meeting since 2005 showed the computer company is moving further from its direct-only sales model that fueled its rapid early success, btt contributed in recent years to slowing growth as competitors took market share.
"You'll see us partner more," Mike Cannon, Dell's president for global operations, said at a meeting with analysts at its headquarters in Round Rock, Texas.
"We'll have more and deeper partnerships with ODMs (original design manufacturers) and EMS (electronics manufacturing services) companies where they can satisfy the needs of our customers" at the lowest costs, Cannon said.
Dell executives also said the company, known since its founding in 1984 as a direct seller that bypassed middlemen, would seek to bolster relationships with resellers that have close ties with customers.
Dell rivals such as Hewlett-Packard Co (HPQ.N), International Business Machines Corp (IBM.N) and Sun Microsystems Inc (JAVA.O) have long-standing relationships with such partners, which typically offer customers bundles of computer hardware, software and services, but Dell has been a relative outsider, as it sought to fatten margins.
"We continue to grow the direct business, but we have opportunities to grow the channel-based business faster and we will continue to do that, said Paul Bell, a senior vice president and head of Dell's Americas business. The indirect- sales business accounts for about $10 billion of Dell's roughly $61 billion in annual revenue and Bell said the proportion should grow.
Dell, already known for running one of the industry's most efficient supply chains, will wring more costs out the process of designing, manufacturing and distributing computers as it tries to reduce expenses by $3 billion annually by 2011, Cannon said.
Cannon, the former chief executive of contract electronics maker Solectron Corp and disk-drive manufacturer Maxtor Corp, said Dell historically relied too heavily on its own businesses to design and make computers. Competitors such as HP, which unseated Dell as the largest personal-computer maker in 2006, typically use a more diversified supply chain.
Cannon was hired by founder Michael Dell in 2007 to help revive the company's growth after it foundered under former CEO Kevin Rollins. Michael Dell, 43, replaced Rollins in January, 2007, and hired a new management team, including Donald Carty, the former chairman and CEO of AMR Corp (AMR.N), parent of American Airlines.
"Instead of having one supply chain approach for Dell, we are going to have multiple supply chains," Cannon said.
"I've been in that business," Cannon said, referring to contract electronics manufacturing. "I know the capabilities of those companies and what they can do."
At Dell, he added, executives were "so inwardly focused on our model that we didn't appreciate that those industries have made tremendous progress in scale and capability, and that they should be (better) partners for us."
Cannon declined to say how much the changes in supply-chain would contribute to the $3 billion savings goal. Continued...
