Techs weather port closures
Several industries are feeling the pinch from the six-day shutdown of West Coast ports, but the IT sector seems to be faring better than most.
Although the ongoing battle between dockworkers and terminal operators could rattle the economy, the disruption in the technology supply chain couldn't have happened at a better time. What's a little inventory backup when the industry is struggling amid weak IT spending and a seasonally slow October?
"Demand is not hot, so another two weeks of (port) disruption can be healthy for the industry," said Ashok Kumar, an analyst with U.S. Bancorp Piper Jaffray. He described the current level of inventory held by resellers as at the appropriate levels--neither bloated, nor lean.
A number of tech companies from direct seller Dell Computer to monitor maker ViewSonic and distributor Ingram Micro say they have adequate inventory on hand.
"It's been a normal course of business for us," said Ria Carlson, a spokeswoman for IT distributor Ingram Micro. "We haven't had to ask our customers if they needed to switch to a substitute item because we didn't have what they wanted."
She noted that her company had 25 days of inventory and 280,000 different product identification numbers.
ViewSonic also reported it has not undergone any major problems, as well.
"In the short term, we do not foresee any major supply issues resulting from the dock shutdown," the company said in a statement. "However, if the stoppage continues for an extended period of time, we are prepared to make alternative arrangements to meet the demands of our customers and business partners."
Ironically, the port closures have had limited effect on direct computer makers Dell and Gateway--despite their just-in-time manufacturing process that calls for low inventory levels.
A Gateway representative noted that only its monitors come through the West Coast ports and that other sources for monitors exist within the United States.
Dell, meanwhile, has up to two weeks of component supplies in warehouses adjacent to its Austin, Texas, and Nashville, Tenn., factories, said Charlie Wolf, an analyst with Needham & Co.
And analysts said Dell has taken other steps to ensure that its supply chain can weather short blips.
"Dell doesn't do a lot of outsourcing of their desktops to Asia?ownership of the supply chain is critical to Dell. They don't do nearly as much outsourcing as Apple, Gateway, IBM or HP," said Steve Fortuna, a Merrill Lynch analyst.
"A lot of other manufacturers will have their desktops built to a certain degree in Asia and then ship it over to have it finished by another manufacturer over here or do it themselves," Fortuna said.
The only products outsourced by Dell are its notebooks and motherboards--items that the industry tends to transport into the United States by air, Fortuna said. Desktops and servers, however, tend to arrive by ship and represent roughly 75 percent of global PC unit sales, he added.
During its analyst conference Wednesday, Dell said its operations would not be affected unless the port closure lasted more than 10 days to two weeks.
The 29 ports that stretch from Washington state to Southern California have been closed since Sunday because of a contract dispute between the longshoremen's union, International Longshore and Warehouse Union, and the Pacific Maritime Association, which represents shipping companies and port operators. The contract had expired in July, but the parties had been operating under an extension until last week. A federal mediator met with both camps Thursday, marking a breakthrough in negotiations.
West Coast ports handled $387 billion in imports and exports last year, with Los Angeles-area ports comprising the bulk, according to Jack Kyser, senior vice president and chief economist for the Los Angeles County Economic Development Corp.
Of the $212.5 billion in imports and exports handled by the Los Angeles customs district last year, $70 billion was related to technology, Kyser said.
"The last time there was dock worker strike was in 1971, and it lasted four months. I don?t think this one will last this long. This is a national economic , and you don't want to throw things back into a recession," he said.