Dell planning to ditch factories

CFO Brian Gladden has said the company has "more work to be done" to improve profitability. Now The Wall Street Journal reports that Dell is planning to lower costs by selling off its factories.

Dell PC assembly
PC assembly at Dell's Parmer North 1 facility in Austin, Texas. Courtesy of Dell

During the conference call reporting on second quarter financial results, Dell's new CFO Brian Gladden said several times that the company has "more work to be done," to improve profitability and decrease costs. He wasn't kidding. Over the last year Dell has cut headcount by more than 8,000, and now The Wall Street Journal is reporting that the company is planning to radically alter its production line by selling off its factories to contract manufacturers.

Dell has four factories in the U.S. and six outside the country. Competitors such as Hewlett-Packard have shifted some of their assembly work to more efficient contract manufacturers to lower production costs and increase operating margins. The Journal noted that Dell may not have an easy time ridding itself of its factories, however:

Dell could face several obstacles to selling its plants. Contract manufacturers may be hesitant to buy factories in places with high labor costs, like the U.S., said one person with knowledge of the talks. And some facilities could be encumbered by agreements with local governments. Dell's North Carolina plant, for example, received several million dollars of state and local tax incentives that are contingent on the factory meeting certain employment and local-investment goals by 2015.
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