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Ingram to make PCs for Big 3

The computer distributor aims to usurp Dell by taking over manufacturing duties from Compaq, HP, and IBM.

In its continuing quest to usurp Dell Computer, PC distributor Ingram Micro (IM) will tomorrow open the first of four facilities for making PCs and servers for the likes of Compaq, Hewlett-Packard, and IBM, among others.

The maiden 488,000-square-foot facility, located in Memphis, Tennessee, essentially exists to take costs out of the PC manufacturing process, according to Ed Pensel, Ingram senior vice president of global configuration operations.

With the facility, the computer distributor will begin to take over many of the manufacturing duties of the PC vendors. Ingram will coordinate delivery and purchasing of components, assemble PCs, and install software.

PC vendors will be able to outsource the entire manufacturing process to Ingram, or just part of the process. Sun Microsystems, for example, is using Ingram to configure, but not build, workstations. Configuration typically involves specifying how much memory goes on a system, or how large the hard drive is--and from what manufacturer--as well as software installation.

In the end, using Ingram as a pivot point for PC delivery is designed to reduce costs by cutting out redundant or overlapping processes, Pensel said. Ideally, Ingram will be able to build and deliver a system in two days, he added, a quicker and more cost-effective time frame than Dell's, which currently delivers systems within five days.

"We're producing high-end servers for HP down to low-end boxes," Pensel noted. "What the OEMs [original equipment manufacturers] are looking for are avenues to convert components to finished products more efficiently."

Delivery time will become more efficient as the system goes global. Following the Memphis opening, the company will start up centers in the Netherlands, China, and Canada by June 1999.

The system is also expected to reduce inventory imbalances, according to Pensel, which can erode earnings and cause price erosion. Last week, Compaq announced that earnings for the first quarter would be negligible because of an inventory oversupply of computers, including notebooks and servers.

That Dell is the target of both rival computer vendors and Ingram is no secret. Ingram hired away two executives from Dell to coordinate the development of the facility, Pensel acknowledged.

Although the system works in theory, analysts said that Ingram and the computer vendors will have to fine-tune their relationships for this sort of delayed manufacturing process to produce financial results.

"No one fully understands what the economic consequences will be of the channel building products vs. the manufacturers building products," said Kurt King, computer analyst for NationsBanc Montgomery Securities. "Does the channel have the logistical systems to buy Compaq hard drives from different places all over the globe?"

The challenge for the most part comes in the details. By shifting more of the computer assembly processes, costs are reduced because parts can be shipped and stored at one location. Machines also can be built closer to the time the customer orders a computer.

On the other hand, there is no guarantee that the distributors will be able to manufacture in volumes high enough to make any cost-cutting measures pay off, King added, or that they can perform these tasks more efficiently in the long run.

Roger Kay, computer analyst for International Data Corporation, generally agreed, adding that Compaq's inventory woes are adding fuel to the motivation to improve manufacturing efficiencies.