Dell transfers desktop production to China

SINGAPORE--PC maker Dell Computer is relocating its desktop production activities for the Japanese market from Malaysia to China, a move many manufacturers are expected to make as China prepares to enter the World Trade Organization in November.

The move first began in May with the company's OptiPlex product line, said Yasmin Mahmood, Dell Asia-Pacific general manager for Malaysia.

By month's end, the company will start to shift its Dimension desktop production as well, Mahmood said in an e-mail interview.

Dell has two manufacturing facilities in Penang, Malaysia--its Asia-Pacific Customer Centers (APCC) 1 and 2--that serve the Asia-Pacific region and Japan. The company also has a plant in Xiamen, China--its China Customer Center (CCC)--that ships made-to-order products to China and Hong Kong.

"To ensure that we meet and exceed all customer requirements and load balance in terms of production and logistics within our manufacturing facilities, we decided to use CCC as a production hub for desktop PCs for the Japanese market," Mahmood said, explaining the relocation.

"APCC will continue to manufacture notebooks, workstations, servers and storage products for the Japanese market, as well as the complete line of Dell systems, to the rest of Asia-Pacific--except China and Hong Kong, which are serviced out of CCC in Xiamen," she noted.

With the imminent entry of China and Taiwan into the WTO, the PC maker's move does not come as a surprise, analysts say. And many warn that Malaysia could be the hardest hit.

"Many manufacturers are moving to China since operational costs are cheaper there," said Pearly Yap, an analyst with BNP Prime Peregrine Securities in Singapore. "There are also many good Chinese engineers, and it is easy to buy land in China."

The challenges for Malaysia
With China emerging as a lucrative manufacturing base, Malaysia will try to gain a foothold in making high-end semiconductors and not just focus on lower-end consumer-electronics production and assembly, said Tan Kay Yang, a Gartner Asia-Pacific semiconductor analyst.

"Toward this end, the Malaysian government will need to provide incentives to attract foreign investors for establishing high-end production facilities in the country," Tan said.

Dell Computer Stock price from September 2000 to present.
Source: Prophet Finance

Tan cited the Singapore government as a prime example, as it holds a "significant stake" in most of the republic's wafer fabrication plants, including the Nasdaq-listed Chartered Semiconductor Manufacturing.

But IDC Asia-Pacific's Robin Giang is confident Malaysia will be able to hold its ground.

"Given that the country has a fairly educated and highly technical labor force, it will be feasible to tackle the challenges," said Giang, a senior analyst with IDC's IT Investment & Strategy Research. "Time frame will depend on the rate of knowledge transfer, which is different for different technologies."

"Malaysia will move up, or will need to move up, on the manufacturing value scale," she added.

In addition to relocating desktop production activities for the Japanese market to China, Dell shifted its Home and Small Business Sales Call Center for Hong Kong from Penang to Xiamen earlier this month, Dell's Mahmood said.

She explained that the move serves "to further maintain and enhance efficiencies in our Asia-Pacific operations" and is "transparent" to its customers.

In July, Dell told CNET Malaysia that it laid off 60 workers from two plants in Penang because of sluggish global demands.

Mahmood maintained that there will be no additional job losses as a result of the relocation, and its current head count in Penang stands at 2,000.

CNET Singapore's Irene Tham reported from Singapore.