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Dell Taps China For Components Amid U.S. Slowdown

Dell (NASDAQ: DELL) plans to buy $23 billion of components from China this year and $29 billion in 2009, helping it reduce costs while the company's main market, the United States, is facing recession.

The commoditization of computer hardware means competition is more a function of price and efficiency than quality and branding, making China a favorite place to source a broad range of goods, including electronic components.

"China is critical to Dell's global supply chain," founder and CEO Michael Dell told reporters on Thursday.

"Dell will purchase $70 billion of computer-related supplies and equipment from China," he said, referring to total purchases over the 2007–2009 period.

The world's second-largest personal computer maker, Dell is far from alone in looking to China to reduce manufacturing costs and remain competitive.

Last November, Cisco Systems (NASDAQ: CSCO) said it would almost double its purchasing from Chinese suppliers over five years to $16 billion. Cisco is the biggest maker of routers, switches and other equipment that make up the Internet.

Hardware makers such as Dell, Cisco and Hewlett-Packard (NYSE: HPQ) could be hit hard by a U.S. economic downturn, Dell even more so because it relies on the U.S. for about half of its revenue, a much higher proportion than larger rival HP.

That makes China's role as a customer equally important to Dell, which saw a 54 percent rise in unit sales on the mainland during its last financial quarter. "China is one of the most dynamic and fastest-growing economies in the world, and we've made significant business and social investments here in the past 10 years," Michael Dell said.

Dell's presence in China includes two manufacturing operations in the south, a product design center in Shanghai -- one of the company's largest -- and a sales support center in the northeast for customers in Japan and Korea.

The company lost top market-share spot to HP in 2006 as consumers favored buying notebook PCs in stores, leading it to abandon a long-standing direct-only sales model last year.

It now sells PCs in retailers such as Wal-Mart (NYSE: WMT), Carrefour SA in Europe and China's GOME Electrical Appliances Holding. Dell was speaking at an event to celebrate 10 years of operations in China.



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