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Dell Demands Price Cuts from Component Suppliers

By - Source: DigiTimes | B 21 comments

Dell is looking to cut corners by requesting better prices on components.

Unnamed sources from the upstream supply chain claim that Dell has been demanding lower prices from suppliers in order to reduce its own costs. News of price negotiations arrive after the company said in February that it had entered into an agreement with founder and CEO Michael Dell and Silver Lake to be bought out in a transaction worth USD 24.4 billion.

"We negotiated aggressively to ensure that stockholders received the best possible value and agreed to a $13.65 per share transaction that provides value certainty at a 37% premium above the average price for the 90 days before rumors regarding the transaction surfaced," Dell said in early March.

Meanwhile, the first on Dell's price-cutting list are Catcher Technology and Fuyu Precision Component, a subsidiary of the Foxconn Group, which supplies the metal cases used in laptops and desktops. These are said to be- sold at a higher price level than most other components.

In addition to the current two chassis suppliers, Dell is also reportedly working with Compal Precision Module, a joint-venture between Compal Electronics and Ju Teng. Dell is wanting the company to be a third major chassis supplier that will ultimately help reduce Dell's costs by putting pressure on the current two suppliers.

Sources told DigiTimes that this type of strategy is typical for vendors who are looking for more favorable terms. Although all three chassis suppliers have declined to comment, sources claim that Dell's orders will be "rearranged" in April. Dell is also expected to become more aggressive in demanding price cuts from upstream suppliers now that the company is going private and pushing Enterprise-based PC solutions.

Declining sales in the PC market are undoubtedly forcing OEMs like Dell and HP to negotiate better prices with Taiwan-based component suppliers. Unfortunately, these suppliers are feeling the financial heat as well, reporting poor financial results for February.

 

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  • 14 Hide
    elmo2006 , March 17, 2013 11:35 AM
    This is what happens when you put all your eggs into one basket. Dell is now at the mercy of all these Chinese manufacturers. One of these days and not in the so far distant future, these third world companies will realize that they can do far more damage by demanding higher prices for goods as North America and the remaining so called Developed countries no longer have any form of manufacturing.

    Dell demanding lower prices, IBM shifting its Server Farm to Mexico, TATA swallowing up the majority of support departments, customer service outsourced to the Asia Pacific - the writing is on the wall folks

    LOL - apologies for the RANT!!!
  • 10 Hide
    blubbey , March 17, 2013 10:44 AM
    Dell wanting lower prices? I'm sure they'll pass the savings on to the consumer /s
Other Comments
  • 10 Hide
    blubbey , March 17, 2013 10:44 AM
    Dell wanting lower prices? I'm sure they'll pass the savings on to the consumer /s
  • 2 Hide
    punahou1 , March 17, 2013 10:45 AM
    It will be interesting to see what the case supplier does to maintain its margins/profit after the reduction in price. Possibly using even thinner or lower quality metal/plastics? Foxconn certainly is not going back to hiring 12 year olds again at the risk of loosing the Apple contract....
  • 0 Hide
    punahou1 , March 17, 2013 10:46 AM
    Repeat - sorry
  • 4 Hide
    ruel24 , March 17, 2013 11:13 AM
    Dell's been making junk for years and their service is very poor to say the least. I think they need to look inward to see why their PC sales have slumped. Asus isn't crying one bit about sales.
  • -3 Hide
    janetonly42 , March 17, 2013 11:28 AM
    Yeah, how else can Dell/Microsoft keep making cheap crap. Had two Dells way back when Pentium III were out, build my own now. Both failed within 3 years, they are even crapier now. I say MS because MS gave them allot of cash recently and I'm sure MS is pulling strings there now.
  • 3 Hide
    DjEaZy , March 17, 2013 11:33 AM
    ... Dell Demands Price Cuts from Component Suppliers? To profit more? the cheap end of dell laptops are still more expensive than acer's or samsung's offerings, but not necessarily better in anyway...
  • 14 Hide
    elmo2006 , March 17, 2013 11:35 AM
    This is what happens when you put all your eggs into one basket. Dell is now at the mercy of all these Chinese manufacturers. One of these days and not in the so far distant future, these third world companies will realize that they can do far more damage by demanding higher prices for goods as North America and the remaining so called Developed countries no longer have any form of manufacturing.

    Dell demanding lower prices, IBM shifting its Server Farm to Mexico, TATA swallowing up the majority of support departments, customer service outsourced to the Asia Pacific - the writing is on the wall folks

    LOL - apologies for the RANT!!!
  • 5 Hide
    rodbowler , March 17, 2013 11:40 AM
    @elmo2006
    I have to agree. The whole-sale destruction of local industry is short sighted at best. Western nations now have no way to leverage good / better deals from foreign suppliers. All foxcon et al. have to say is "where else are you gonna go?".
    It saddens me to see the downward spiral of western civilisation due to poor government policy and corporate greed.
    JMHO.
  • 4 Hide
    bourgeoisdude , March 17, 2013 11:54 AM
    janetonly42Yeah, how else can Dell/Microsoft keep making cheap crap. Had two Dells way back when Pentium III were out, build my own now. Both failed within 3 years, they are even crapier now. I say MS because MS gave them allot of cash recently and I'm sure MS is pulling strings there now.


    Funny you say that. I remember those old Dimension "chubby cheek" XPS 700 machines (Pentium III). I still see them. I have never seen one that didn't work. Ever. I hated those things because we kept getting calls on them for software issues well after the hardware warranty expired.

    Maybe I'm biased because I was in Dell tech support for so long, but other than a few missteps (and some recent Laptops), Dell has the most solid hardware of the bunch. I say a few, but if you happened to buy a bunch of GX270's with bad mobo capacitors, or buy a PC with those stupid Maxtor 20GB/40GB ATA133 drives, I do feel bad for you.
  • 0 Hide
    Anonymous , March 17, 2013 11:58 AM
    punahou1It will be interesting to see what the case supplier does to maintain its margins/profit after the reduction in price. Possibly using even thinner or lower quality metal/plastics? Foxconn certainly is not going back to hiring 12 year olds again at the risk of loosing the Apple contract....


    I can't see apple leaving Foxconn, not whilst sales are still this high, I doubt that there is another single company that can put together all of their products, I imagine samsung probably have one of the biggest ranges of factories and i doubt they would go to samsung
  • 0 Hide
    DRosencraft , March 17, 2013 12:21 PM
    This type of thing is what Dell used to do when it first came on the scene. They were small so they had to be aggressive with negotiating prices down to compete. As they grew they got less adamant about it, and their prices went up across the board. I see it as unlikely that they'll be able to save much by way of direct talks with their current suppliers. It will probably be more critical to put outward pressure by bringing in a third competitor, or possibly replacing one of the other two.

    In the end, I don't know how much money they'll even be able to save. How much do they pay for their chassis? I mean, a comparable case on Amazon or Newegg isn't gonna cost much more than $50 at worst. That alone isn't going to make Dell's computers more competitive or attractive in pricing. On the other hand, don't really know how much savings they'll be able to negotiate from Intel/Nvidia/AMD on CPU/GPU. Seems like the PSU and motherboard suppliers will be the next targets, likely PSU before motherboard.
  • -2 Hide
    demonhorde665 , March 17, 2013 12:35 PM
    well if they would actually start offering AMD cpus at dell and their subsidary Alien ware then maybe they could cost some that way .. but no they still don't carry AMD
  • 0 Hide
    Haserath , March 17, 2013 2:32 PM
    DRosencraftThis type of thing is what Dell used to do when it first came on the scene. They were small so they had to be aggressive with negotiating prices down to compete. As they grew they got less adamant about it, and their prices went up across the board. I see it as unlikely that they'll be able to save much by way of direct talks with their current suppliers. It will probably be more critical to put outward pressure by bringing in a third competitor, or possibly replacing one of the other two. In the end, I don't know how much money they'll even be able to save. How much do they pay for their chassis? I mean, a comparable case on Amazon or Newegg isn't gonna cost much more than $50 at worst. That alone isn't going to make Dell's computers more competitive or attractive in pricing. On the other hand, don't really know how much savings they'll be able to negotiate from Intel/Nvidia/AMD on CPU/GPU. Seems like the PSU and motherboard suppliers will be the next targets, likely PSU before motherboard.

    Cut $5 off per PC, sell 10 million, and make $50M more profit or 10% more per quarter. They just need that tiny bit off on volume orders.
  • 0 Hide
    warezme , March 17, 2013 3:18 PM
    MS better start subsidizing all the PC manufacturers if they want to survive,... OR MAYBE they could just get rid of METRO! on Win8 for desktops and real laptops and they will see everyone start buying PC's again???
  • 0 Hide
    JonnyDough , March 17, 2013 4:29 PM
    Not to mention Dell cases have historically been utter crap. Thin metal, not easy to open (by their design, presumably so that ignorant consumers can't mess up their PC), cheap plastic bezels that break, and huge heatsinks that are heavy and have one fan to cool the CPU and the entire case.
  • 0 Hide
    JonnyDough , March 17, 2013 4:31 PM
    janetonly42Yeah, how else can Dell/Microsoft keep making cheap crap. Had two Dells way back when Pentium III were out, build my own now. Both failed within 3 years, they are even crapier now. I say MS because MS gave them allot of cash recently and I'm sure MS is pulling strings there now.


    Actually, they are better now. But while they should be seeing higher profit margins, only their suppliers are. Which is why they are shopping around. You would think that to keep up with competitive pricing that they would ALWAYS be looking for new/better suppliers. But switching suppliers can be risky, that's why a company really has to research suppliers and find very sound and reliable companies that can output the needed product JIT (just in time).
  • 0 Hide
    JonnyDough , March 17, 2013 4:34 PM
    elmo2006This is what happens when you put all your eggs into one basket. Dell is now at the mercy of all these Chinese manufacturers. One of these days and not in the so far distant future, these third world companies will realize that they can do far more damage by demanding higher prices for goods as North America and the remaining so called Developed countries no longer have any form of manufacturing.Dell demanding lower prices, IBM shifting its Server Farm to Mexico, TATA swallowing up the majority of support departments, customer service outsourced to the Asia Pacific - the writing is on the wall folksLOL - apologies for the RANT!!!


    I'm pretty sure that the Chinese already know that N. Americans have more/will pay more. They already sell us mostly premium goods at higher prices. If you don't know that, then you my friend are not very well traveled. Visit the former USSR and you will soon realize that we Americans are being taken for fools.
  • 0 Hide
    Nintendork , March 17, 2013 8:00 PM
    Then start using AMD and ditch intel. As with "ultrabooks" intel doesn't want to offer better prices on their overpriced products.

    Intel cpu prices are the main issues for this profit-constrained companies.
  • 0 Hide
    aggroboy , March 17, 2013 8:34 PM
    In this comments section, random anonymous people talking like they have a clue about retail, SRM, supply chain or manufacturing.
  • 0 Hide
    rebel1280 , March 18, 2013 6:25 AM
    so... why dont we just build our own manufacturing plants here in the states? Most of the factory can be run by machines anyways so we dont have to worry about "personnel" cost. Just pay about 50 engineers to maintain the equipment. Its a short term investment but a very high long term return. This country is so short sighted it scares me :(  ... as soon as i reread this, i knew it wouldnt work. There are to many greedy people that will want to get their hands in the money pot that this will never work :(  Just look at how much it cost NASA to build and go to space per mission compared to what it costs Space-x program (privately owned) It would take someone like Buffett or gates to get this going.
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