A Dell of a Deal

LEE HAN SHIH
Dec 12, 2008
*Special to asia!
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Will the Taiwanese keep their friendship with Michael Dell or will he have to turn to Korea?

In late March, a middle aged, slightly pudgy man with curly hair and a sheepish smile turned up quietly in Taiwan. His name: Michael Dell.

Dell is the former wonder kid who quit college in Texas to set up his own direct supply personal computer business, one of the youngest billionaires in American history and the man who caused the downfall of numerous rivals. But the man who mastered supply chain management, and struck fear in the likes of Hewlett-Packard and IBM by his ability to keep minimal stock and carry out ferocious price-cutting, is now on the ropes.

Dell has been overtaken by HP as the top PC supplier. The company that once operated with enviable efficiency is now mired in bureaucracy. Its top management has lost touch with the market—last year Dell was caught unawares by a sudden price collapse for the 17-inch and 19-inch monitors, its mainstay. Its bottomline suffered. Costs are ballooning. And consumers, who once flocked to Dell for its lowly priced products, have cast their eyes elsewhere.

Michael Dell took drastic action. His dismissed the man who was often referred to as his alter ego—long time CEO Kevin Rollins. Rollins, who famously dismissed the iPod as a "fad" and Apple as a "one product company", was unceremoniously booted out. His post was taken over by Dell himself.

Knowing full well that cost remains his biggest advantage, Michael Dell issued a demand to his main suppliers for a price cut. As most of these suppliers are in Taiwan, the news created a huge stir among Taiwan manufacturers who were already having problems making ends meet because of paper-thin margins.

But Dell Inc had the muscle to enforce its demand. It is by far Taiwan’s single biggest IT customer. Last year Dell Inc bought some 20 million monitors from Taiwan. This year it could buy up to 23 million pieces with a total value of US$2.3 billion. That apart, Dell buys many other IT products from Taiwan—notebook computers, desktop computers, plasma monitors, servers, you name it. In all, its purchases came up to US$12.5 billion last year.

The size of Dell’s purchases had made it necessary for its top officials to visit Taiwan annually. The trips were to foster relationships, to negotiate prices and to discuss trends. In the past few years, after Dell ascended to the top position in the PC world, these talks had degenerated into nothing more than routine or even pleasure trips. This was why Dell was caught short by the fall in monitor prices last year.

Michael Dell’s trip to Taiwan aimed to change the situation. Sources there said Dell had tweaked his supply chain model to iron out the inefficiencies and seemed to be gearing up to launch another price war in the US. To do that he needed his suppliers to back him up. (The sources quipped that Dell would ask for the lowest possible prices then demand another 10% cut from them.

Dell aims to sell some 30 million monitors and 16 million notebook computers this year, a large portion of that could come from Taiwan. Or it could come from South Korea. Pricing is the key. Whoever can offer the lowest prices at the most favourable terms will be Michael Dell’s friends. Given the difficulty of meeting his demands, the Taiwanese are wondering whether they want the honour.

 

 

lee han shihLee Han Shih is the founder, publisher and editor of asia! Magazine.

 

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