Dell ups Taiwan buying to $12.5 bln to control costs

By Sheena Lee (Additional reporting by Baker Li)

Mon May 8, 3:05 AM ET

TAIPEI (Reuters) - Dell Inc., the world's top personal computer maker, wants to ramp up components sourcing in Taiwan by over a fifth to US$12.5 billion in 2006, its chief executive said on Monday, as global technology firms turn increasingly to the island to trim costs.

Computer and consumer electronics vendors from Japan to the United States are increasingly buying from specialized Taiwan companies such as display maker AU Optronics Corp. to hold down costs.

Indeed, Dell -- which vies with Hewlett-Packard Co. and China's Lenovo Group in a steadily expanding global personal computer market -- spent some US$10 billion on procurement in Taiwan in 2005.

Dell's Chief Executive Officer, Kevin Rollins, is visiting the island this week to outline his company's strategy to a select group of suppliers.

"Dell is stepping up its presence in Taiwan while growth has been impressive, and Dell plans to spend US$12.5 billion purchasing products in Taiwan this year to support our global business and manufacturing," Rollins told reporters.

"Growing solid partnerships in Taiwan ... will be key to our global expansion."

Taiwan is cementing its pivotal role in the global supply chain by ruthlessly slashing costs and relocating capacity to mainland China.

Cut-to the-bone production techniques employed by personal computer makers, for instance, have won them an estimated four-fifths of global contracts.

"Dell is here at a pivotal time to discuss prices with major Taiwan OEM, ODM players," said Merrill Lynch analyst Tony Tseng, referring to contract manufacturers that make products for brand-name firms such as Dell.

But analysts warn that contract manufacturers, such as laptop makers Quanta Computer Inc. and Compal Electronics, need to adopt cutting-edge designs or risk losing contracts. And a growing number of tech giants are bypassing the island altogether by setting up their own Chinese bases.

Rollins will meet executives from AU Optronics and Chi Mei Optoelectronics Corp., Taiwan's two largest makers of liquid crystal displays, as well as major contract makers of laptops, the Commercial Times said.

Dell saw market share slipping in 2005 in crucial Asian markets such as China, where its share of the market slid to 8.2 percent in the third quarter versus the second quarter's 9.6 percent, although it ended the year with a 9.1 percent slice, according to consultants IDC.

In contrast, Taiwan's Acer Inc., the world's fourth-largest PC vendor, posted an 87 percent jump in first-quarter profit thanks to strong demand from Asia and North America.