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Can Dell Compete with the China Price?
Computers | Dec 8, 04
So the Chinese PC-maker Lenovo is buying IBM's PC business, which will make the firm number three in the market with about an 8% share. But the real issue is what happens to PC prices and firms now that the PC is increasingly a commodity. As the world has seen, commodity manufacture tends to migrate to the cheapest labor market, and a movement of the personal computer hardware business to China would be just the latest example. Indeed, manufacturers in this country often complain of competing against the so-called "China price"; the price offered by Chinese firms availing themselves of super-low wages in their own country. So what might the Lenovo-IBM deal mean for consumers? Expect further downward price pressure on PCs. And for Dell, HP and friends? Unless they can make some case for "value-added" pricing driven by service and styling, they'll experience ferocious competition, and, at best, razor-thin margins.
Posted by jeffrey.trester (Permalink)
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I'd add that it is unclear what the impact of this sale will be on software. I would think that the Chinese would be loath to share so much of their profit with Microsoft, and that as a result there might be some further shifts in software strategy coming down the line.
Posted by: david.ness at December 10, 2004 7:37 AM
The cost won't be an issue. Both IBM and Dell produce their computers in China before this deal, and they will continue to do so as long as the labor is cheap there.
Posted by: CCLu at December 13, 2004 10:02 AM
The previous comment is incorrect - Dell does much of its manufacturing here in the US, notably at its giant Mort Topfer facility in Round Rock, Texas. They are also negotiating to set up a new plant in North Carolina. And yes, they are of course paying US wages. Its worth noting Dell also maintains plants overseas, notably in Ireland. But they are talking about expanding their manufacturing in Asia, and one wonders what this deal will mean in terms of price pressure to pursue the strategy. In the end, cost pretty much always matters!
Posted by: jeffrey.trester at December 13, 2004 12:28 PM
The PC's are not manufactured, but assembled. The two biggests costs to these companies are the Intel chip-set and Windows XP. Indeed, will we see a migration to Linux as an OS?
Posted by: Steve at December 13, 2004 4:32 PM
Because all PC makers are in fact assemblers of machines from parts made largely by other firms, the terms manufacture and assembly are taken as synonymous in this business, and right now Dell is performing this task in the US. However, Steve has a point in that Dell neither makes the chips nor the OS, nor many of the other components of their machines, though both of these are still made domestically. One does wonder if the emergence of Linux presents a threat to American hegemony in the PC world.
Posted by: jeffrey.trester at December 13, 2004 4:52 PM
American business going to low labor cost countries shakes up many Americans.
There are reports about low wages in foreign nations but little news about their cost-of-living and their executive salaries/perks compared to ours in America.
How do gaps between Haves and Have-nots overseas compare with gap in the USA?
Why does it cost so much to enjoy life in America?
Joseph E Hicswa - Passaic, N.J.
Posted by: Joseph E Hicswa at December 14, 2004 9:21 AM
