A local manufacturing plant of Dell Inc., the world’s second largest personal computer maker, near Chennai has built 65,000 desktop computers in the quarter ended September and plans to increase capacity of the factory by one-fourth to also make notebook computers and servers next year.
The 50-acre Dell factory at Sriperumbudur, with a planned investment of about $30 million (Rs119 crore) is the Austin, Texas-based firm’s third manufacturing facility in the Asia-Pacific region. The company began desktop production in July to address the domestic market.
“As of now the plant makes only desktops, but we already have notebooks in test mode and next year, you will see Dell produce desktops, notebooks and servers out of India. The demand here is very strong. Already, our capacity equals the 4,00,000 units per annum mark and when we add notebooks and servers to the plant, the capacity will be over 500,000 units annually,” said Steve Felice, president, Asia-Pacific and Japan for Dell, in an interview here.
Felice added that though the Sriperumbudur factory is currently meeting demand from India, “there could be a day when we will be exporting from that facility as well”. Earlier this year, Dell commenced manufacturing at a new facility in Brazil, and another will open in Poland later this year.
Research firm Gartner Inc.’s principal analyst Diptarup Chakraborti said the India presence helps Dell reduce the advantage enjoyed by rivals Hewlett-Packard?Co., HCL Infosystems Ltd and local units of Lenovo and Acer, all of whom have a local manufacturing presence and don’t have to pay import duties on their wares.
Dell follows a February to January fiscal year and global revenues of the firm for the 12 months ended January, stood at $57.4 billion at today’s currency rates. Of this, revenues from Asia accounted for around $8 billion. Dell does not disclose sales in India,but said its Indian commercial business grew by more than 50% in volumes and notebook sales by 85%.
Dell has four focus business areas mostly organized by geography—three units covering the Americas; Europe, West Asia and Africa; and Asia-Pacific including Japan—and a consumer business that accounts for about 15% of business. Around 85% of the business is institutional in Asia and the company is keen to expand its footprint in consumer space and be present “in high volume areas, rather than in niche areas.”
The computer maker, which has mostly sold its products directly to its consumers on phone or the Internet rather than through a retail network is also looking at a change in that strategy as it explores the retail and partner channel of doing business worldwide, particularly in Asia.
“Our strategy is to increase our coverage and be available to customers in every possible way. In Asia, particularly in India, the direct model is a terrific way for customers to do business with Dell and we see it as a principal source of the growth. We are trying to find the right relationships in the right places and even though we are embracing partners and channels, we will not de-commit or reduce our direct model,” the Dell Asia head said.
The company has announced tie-ups with various retail chains such as Gome in China, Carrefour Group in Europe, and Wal-Mart Stores Inc. in the US in the last year. Dell products are today available across 10,000 retail locations globally, Felice said.
“We are open to retail tie-ups in India and are investigating the market here. We are in talks with partners and are discussing things frequently. It is certainly our intention to have a retail presence in the top markets around the world. We are looking at large volume companies that have multiple stores and distributors, but the Indian market is different in that it is much more fragmented, and you don’t find large retailers of electronic products,” Felice said.
According to Gartner, worldwide personal computer, or PC, shipments stood at 68.5 million units in the July-September quarter of 2007. While Palo Alto, California-based Hewlett-Packard retained its top position, maintaining the position for five consecutive quarters, Dell achieved its first worldwide shipment increase in four quarters. “(Dell’s) shipments in the Asia-Pacific and Europe, Middle East and Africa results were positive, but it continued to struggle in the US market,” Gartner said in an October statement.
While Hewlett-Packard sold nearly 12.85 million PC units in the September garnering a 18.8% market share, Gartner said, Dell sold 9.86 million units for the same period with a market share of 14.4%.
“Dell wants to be in more places and increase coverage to become the No. 1 company worldwide as the amount and breadth of growth is increasing. That is happening with the expansion of the direct model and the expansion and adoption of some partner models. Also, by providing our consumers great products, wireless technologies and security,” Felice said.
Dell has adopted a “simplification of technology” strategy to regain its market share and penetrate across more regions with customers such as search giant Google Inc. under the programme.
“The whole IT simplification message we have plays very well in Asia and is very consistent here with a need to have speed and build out fast. These are the fastest growing economies in the world. Dell’s approach is saying that the advancement of technology is such that there is no need to add so much complexity and investment; you can do things faster and in smaller building blocks,” Felice said .
The PC vendor is also building out its services infrastructure to assist customers in expanding their businesses. In Asia, about 10% of its $8 billion revenues comes from services, which will be a key area for the company.
“ We diagnose and manage all our customer projects but we use partners for some of the implementations. We will continue to use a combination of Dell resources and partner resources as it is a good way to scale business. We have around 12,000 people in India and sales and service employment in India will rise at a pretty rapid rate as we grow at between 40% and 50% in India,” Felice added.