Dell Plans to Phase Out Chinese Chips from PCs by Next Year

Dell plans to cease using chips produced in China in its products by 2024 amid concerns over tensions between the U.S. and China, reports Nikkei citing sources familiar with the PC maker's plans.

It is unclear whether Dell can indeed replace all chips made by companies like SMIC and Hua Hong by next year from all of its designs and how this affects its costs.  

Dell's ultimate plan is to stop using chips made in China by 2024, but even before that the company intends to meaningfully reduce China-made ICs from its products, the company reportedly told its suppliers late last year. The world's third largest PC maker reportedly wants to stop using chips designed by Chinese companies and produced in China as well as ICs designed by foreign companies and made at facilities in China. 

There are several reasons why Dell wants to stop using chips produced in China in its products. First up, the company will diversify its supply chain. Secondly, U.S. lawmakers late in 2021 considered banning devices that feature chips made in China from using by government organizations due to national security concerns. The government did not proceed with the idea, but certainly Dell wants to ensure that its gear does not get banned by U.S. legislators even if they prohibit usage of hardware featuring China-made chips by government agencies, which are among its major clients. 

China-based chipmakers like SMIC and Hua Hong produce boatload of relatively simplistic chips like display driver ICs (DDICs), power management ICs (PMICs) and various microcontroller units (MCUs) for a variety of PCs, displays, keyboards, mice, and other products. Meanwhile, companies like Samsung and SK Hynix produce 3D NAND and DRAM chips at their facilities in China, whereas Micron runs a test and packaging facility in China. Dell did not confirm the plan to replace China-made chips from its products by 2024, but stated that it was "continuously exploring supply chain diversification across the globe." 

"There are thousands of components for notebook computers, and the ecosystem was so mature and complete in China for years," an executive from a chipmaker that supplies chips to both Dell and HP reportedly told Nikkei. "Previously we knew Dell kind of had plans to diversify from China, but this time it is kind of radical. They do not even want their chips to be made in China, citing concerns over the U.S. government's policy. […] It is not just an evaluation, it is not crying wolf. It is a real and ongoing plan, and this trend looks irreversible." 

Replacing all kinds of chips with China origin from all products is a tough task, especially keeping in mind that many devices are produced by third parties and figuring out what they use is not always easy. Nonetheless, it is not all that impossible. 

All large U.S.-based PC makers transferred their production to China in the recent couple of decades, which helped to create a fully-fledged supply chain in the country. But rising labor costs in China and growing tensions between the People's Republic and the U.S. have urged PC makers to diversify their supply chains.  

Apple reportedly plans to produce some of its MacBooks in Vietnam starting 2023, whereas numerous server makers are transferring their production to Taiwan. Even Foxconn, the world's largest contract maker of electronics, has been establishing presence in India and Vietnam for a while, which is not easy as Vietnam still lacks sufficient engineering talent. 

But what is unclear is if or how such supply chain diversification will affect prices of finished goods.