By Lilian Zhang

2022-1-10

US personal computer giant Dell’s plan to cut China exposure by phasing out China-made chips by 2024 points to an accelerated decoupling process between the world’s two largest economies amid deepening Beijing-Washington mistrust, analysts say.

Dell, which has been present in China for over a quarter of a century, has decided to stop using China-made semiconductors by 2024 and may move about 50 per cent of its production out of the country by 2025, according to Nikkei Asia and Taiwan media reports.

Dell declined to comment on the reports on Monday.

Dell’s reported plan to cut its China exposure is the latest incidence of global firms pulling some, or all, of their manufacturing operations out of China amid rising geopolitical tensions with the US and after supply chain disruption due to pandemic-related lockdowns.

Dell has gradually increased investment in China since it entered the market in 1995, with manufacturing sites in Xiamen, Chengdu and Kunshan, four research centres, 12,500 employees, and more than 12,000 retail stores in China, according to its recruitment website.

But this is set to reverse amid rising tech tensions between Washington and Beijing, which has seen the US impose trade sanctions on China in important tech sectors, such as semiconductors, in the name of national security.

“As the United States ramps up efforts to prevent China-made chips, Dell is expected to be the first to evaluate the earliest time for production to leave the country based on considerations such as [potential loss of] significant revenue from North America and US government procurements,” said Eddie Han, an analyst at Isaiah Research, a Taiwan-based research agency. “Their move is more aggressive than other PC makers.”

Chiu Shih-fang, a tech and supply chain analyst at the Taiwan Institute of Economic Research, said Dell’s initiative is intended “to ensure the overall stability of shipments and the resilience of their business operations” given the US restrictions imposed on China.

“Dell and other big brands have set a clear goal to reduce the proportion of production capacity in China, pushing ODMs (own design manufacturers) and contract manufacturers to expedite shifting capacity away from China,” Chiu said.

Dell assembles most of its computers in China through Taiwanese contractors Compal Electronics and Wistron Corp, and the two have already started to expand their production in Vietnam. Compal said last November it was investing US$60 million in a Vietnam plant, while Wistron is also expanding its notebook production facilities in Taiwan and Vietnam.

Dell, Compal and Wistron did not respond to requests for comments on this matter on Monday.

Isaiah’s Han said that it would take time to see whether expansion of production lines outside China can keep up with demand, but the trend of gradual diversification is there for the next five to 10 years.

Edward Tse, CEO of Gao Feng Advisory Company, said it is probably not a good decision for Dell as China still has advantages in terms of efficiency and cost.

“No country can replace China in manufacturing high quality and low-cost products,” Tse said. Meanwhile, Dell also risks losing some Chinese consumers. “If Dell leaves, it’s hard to say whether Chinese customers will remain loyal and continue to buy their products,” Tse added.

Worldwide PC shipments fell 18 per cent to 69.4 million units in the third quarter of last year. Dell’s shipments fell 21 per cent year-on-year to nearly 12 million units, according to tech research firm Canalys.

In the Chinese market, PC shipments fell 13 per cent over the same period, with Dell’s market share dropping from 12.9 per cent in 2021 to 11.7 per cent. Lenovo Group remained the market leader, with a 38.2 per cent market share in the same period.

According to Dell’s results for its fiscal third quarter 2023, net income reached US$241 million, down 93 per cent from a year ago, with revenue down six per cent to US$24.7 billion in the same quarter.