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Outsourcing plans enlarging at HP

In a move to cut PC operations costs even further, the computer and printer company says it will outsource even more manufacturing worldwide.

In a move to cut PC operations costs even further, Hewlett-Packard said Thursday it would outsource more manufacturing worldwide.

The Palo Alto, Calif.-based PC giant is negotiating with Sanmina-SCI for a sale of its manufacturing site in Isle d'Abeau, France. Under the deal, Sanmina-SCI would acquire factories and about 500 employees. HP is consulting with the French workers council on the deal as well, the company said.

If the deal gets completed, HP will largely be out of the business of PC manufacturing. Currently, HP outsources nearly 100 percent of its consumer PCs but less than 50 percent of its notebooks, business PCs and low-end servers. After the deal, more than 90 percent of these products will be made by contract manufacturers, according to a spokeswoman. HP will also have only six plants left: four in the Asia-Pacific and two in Latin America.

HP began outsourcing PC manufacturing in 1993 and has lately embarked on more stringent cost-saving measures as its profits have fallen along with the demand for personal computers.

The maker of computers and printers has been caught up in a scuffle over a proposed merger with Compaq Computer, with a major criticism being that Compaq's greater exposure to the money-losing computer business would dilute HP's financials. The company has a board meeting scheduled Thursday.

HP said it plans additional outsourcing of its PC manufacturing facilities worldwide, "in keeping with its long-standing strategy to decrease operations costs." The company also said it would outsource at other sites, as it narrows its focus on supply-chain design, new-product and services development, and customer relationship management. see special coverage: Big iron: HP to buy Compaq

The company said the outsourcing would proceed independently of the proposed Compaq merger.

The Compaq acquisition will likely put HP back into manufacturing. Compaq has spent years developing a just-in-time manufacturing facility to compete with Dell Computer, and the benefits of the effort are beginning to pay off. Analysts say HP will likely follow a hybrid strategy by continuing to outsource consumer and small-business products while shifting its corporate PC lines to the Compaq factory.

Last week, Sanmina signed a $5 billion outsourcing pact with IBM to take over production of the NetVista desktop PC line.