DELL INC.

Dell closing its last large U.S. plant

Company will move North Carolina factory's production of PCs to sites overseas.

By Kirk Ladendorf
AMERICAN-STATESMAN STAFF
Thursday, October 08, 2009

Dell Inc. started production in its Winston-Salem, N.C., computer plant in 2005, pledging to make it a showplace of electronics manufacturing efficiency that would turn out $10 billion worth of computers a year and employ up to 1,500 people.

But on Wednesday, Dell told its 905 workers there that the factory will be closed by January in a cost-cutting move that will send more of the company's manufacturing overseas.

The announcement marked another painful step in Dell's two-year efficiency drive to slash $4 billion from its annual operating costs. It also spells the end for most of Dell's personal computer manufacturing in the United States.

The plant's closing is part of Dell's continuing retreat from the build-to-order direct-sales model that fueled much of its growth and profit during its first 20 years.

Analysts said they expect Dell will transfer much of the work now done in North Carolina to lower-cost contract manufacturers in Asia, who already make PCs for Dell's rivals.

Dell said some of the work will go to its own factories in other countries.

Before it built the 750,000-square-foot plant in Winston-Salem, Dell negotiated a package of incentives worth $240 million over 20 years from local and state governments, pegged to employment and other targets. Now, the company is preparing to give back part or all of the money it has received.

Winston-Salem Mayor Allen Joines said Wednesday that Dell had pledged to repay the entire $15.6 million it has received from the city.

"This was a difficult but necessary decision to improve the company's competitive position," Dell spokesman David Frink said. "It is not a commentary on workers in North Carolina or workers in the United States."

Dell continues to make computers in Poland, Malaysia, India, China and Ireland. It has said it will close its assembly plant in Limerick, Ireland, next year, shifting that work to its newer facility in Lodz, Poland.

Dell also makes servers — its most profitable computers — in North Austin, and its Alienware subsidiary makes gaming computers in Miami.

Analyst Roger Kay said Dell belatedly realized that most of its U.S.-based manufacturing operations, where computers were made to match individual customer orders, could no longer compete effectively with high-volume factories overseas.

"The direct model is now taking a back seat to contract manufacturing," said Kay, with Endpoint Technologies Associates Inc.

Dell previously shut down a desktop plant in North Austin in 2008 and stopped desktop manufacturing in Lebanon, Tenn., early this year.

"In hindsight, you can say that the North Carolina factory never should have been built," Kay said. "But you couldn't tell in 2005" — when the computer industry was booming — "that things weren't going up forever."

"Before, (Hewlett-Packard Co.) was trying to match Dell's efficient direct manufacturing model," said analyst Ashok Kumar with Northeast Securities Inc. "Now Dell is trying to catch up with the rest of the industry" by relying more on outsourcing.

The plant closing continues a dramatic cost-cutting campaign that CEO Michael Dell began in 2007, when he reclaimed the chief executive title and forced out Kevin Rollins, who had been a champion of the direct model.

"The direct model has been a revolution, but is not a religion," Dell told employees in an April 2007 e-mail, vowing to reinvent the company.

In the past two years, Dell has reshaped his top executive staff and launched organizational, product and strategy changes. Last month, Dell made its biggest acquisition ever, buying Perot Systems Inc. for $3.9 billion.

The company reported in February that its worldwide employment was 78,900, down 9,300 jobs from the previous year. Analysts say they expect the company will continue to drive costs down, which probably means more job cuts. In September, Dell announced the January closing of a customer call center in Twin Falls, Idaho, cutting 500 jobs.

Dell has an estimated 16,000 workers in Central Texas, but the company does not disclose its area employment, and it updates its global employment just once a year.

The company said it will cut about 600 jobs in North Carolina next month and close the Winston-Salem plant in January.

The affected workers will receive severance packages and outplacement services along with a temporary continuation of health insurance benefits.

kladendorf@statesman.com; 445-3622