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May 09, 2006
Dell turns to Taiwan
As the bad news at Dell gets worse, its dependence on Taiwanese suppliers is increasing. Kevin Rollins, the CEO of Dell, was in Taiwan yesterday and told reporters that the company will buy at least $12 billion in components from the island?? electronics companies; that?? a 20% increase over last year. That should have been good news for companies like Quanta Computer and Compal Electronics, which make most of the world?? notebook PCs and are big suppliers to Dell. But shares of Quanta and Compal dropped sharply today, despite the announcement by Rollins, since the news about sourcing from Taiwan came on the same day that Dell also revealed that it would miss its profit forecast for the first quarter. Dell's profit, the company said, would come in at 33 cents a share, compared to a projected range of 36 to 38 cents.
The problem is that Dell is cutting prices in order to give its PC sales a lift. Or, as my colleague Louise Lee writes in this BusinessWeek story, "in recent weeks, Dell has held a virtual fire sale, offering many PCs at rock-bottom prices." Rollins wouldn?? comment on a report in the Taiwanese newspaper Digitimes that the U.S. company is demanding that Quanta help it make up the difference by giving back 1.5% of Dell's 2006 orders in order to win 2007 business.
My guess is that Quanta said yes, since the consolidation of the PC industry into a handful of major players means that a big customer like Dell is even more important to a Taiwanese supplier. If Quanta refused Dell's demand, there are plenty of other Taiwanese companies that would be happy to get the orders. So Quanta probably has little choice but to do what Dell wants. When asked yesterday, Rollins would only tell reporters that his talks with Taiwanese were ??riendly.?But with friends like Dell, the Taiwanese don’t really need enemies, do they?
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