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Dell Demands Price Cuts from Component Suppliers

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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