timesonline.co.uk/business 14.09.08 5

Now yousee it…

In February 1999, three weeks short ofhis 34th birthday, Michael Dellbounced into Limerick bearing gifts.The youngest ever chief executive of aFortune 500 company, the world’s 500

largest firms, Dell was unveiling the founda-tion stone for a third manufacturing plantthere that would create 1,700 new jobs.

Dell may have been a Texan universitydrop-out, but his personal dynamism andbusiness vision had turned him into amultibillionaire. The magic was about torub off on Limerick.

Mary O’Rourke, then the minister forpublic enterprise, was struck by Dell’s can-do attitude and down-to-earth manner.“Oh, he was very young. You read aboutthese young prodigies and Dell was clearlyone of them,” O’Rourke recalled. “It wasexciting. Dell was opening up huge vistasfor Limerick.”

Almost a decade on, the firm’s future inLimerick is less certain. Dell is carrying outa radical review of its global manufacturingand there are growing fears it could scaleback or even close its operations here.

Last month The Sunday Times revealedDell was in talks with Foxconn, an Asiancontract manufacturer, about allowing it tobuy its plant in Poland. The move is part ofa much bigger push by the group towardsoutsourcing production under a processcalled original design manufacturing.

The news provoked uproar in Poland andset off alarm bells in Ireland where Dellexports ¤9 billion worth of products annu-ally, accounting for 2% of gross nationalproduct. This month, The Wall Street Jour-nal upped the ante further. It wrote thatthe company was planning to sell or closefactories across its entire global networkwithin 18 months. Since then, a blanket ofsilence has descended around the future ofits Irish operations.

DELL employs 3,000 people directly in Lim-erick. A further 1,500 work on a contractbasis, and about 800 are added during peaktimes of the year. About 2,000 of Dell’s per-manent workers are employed in manufac-turing, with a large proportion making lap-tops, the product line that is most vulnera-ble to outsourcing. Another 1,000 work inareas less likely to face outsourcing.

Between 9,000 and 20,000 related jobs inMunster are in some way dependent on theplant. Logistics and computer parts mak-ers, including Banta, Flextronics, UPS,Syncreon and Schenker, are the most vul-nerable. Banta, for example, employs 700people.

John Gilligan, the mayor of Limerick,described the possibility of Dell leaving orscaling back its operations there as cata-strophic. “We are very, very worried. Wereally don’t know what is going on,” he said.

Gilligan is not alone. Nobody in Limer-ick, local business or the government reallyknows what is happening. Everything,says Dell, is “rumour and speculation”.

Dell’s decision to overhaul the way itmakes desktops, laptops, servers and otherdevices did not happen overnight. MichaelDell told shareholders in July that “as weevolved, we lost focus and allowed our coststructure to become uncompetitive”.

The rot started when Michael Dellstepped down as chief executive in March2004. He put his “good friend” Kevin Rollinsin charge. The men were close, separated atwork by just a sliding door between theiroffices in Texas.

Rollins, however, failed to deliver. Underhis watch, Dell’s share price halved from apeak of $42. On the sidelines as chairman,Michael Dell watched in alarm as Hewlett-Packard overtook the company he hadfounded to become the world’s number onemaker of personal computers.

Hewlett-Packard, unlike Dell, hadembraced outsourcing. This meant it couldtake Dell on not just with the quality of itsproducts and customer support but also, forthe first time, on price.

In January 2007, Michael Dell finally letRollins go, took the reins, and vowed toturn things around. A wave of high-profileexecutive resignations or sackings fol-lowed. Michael Dell was on the warpath.

The following month, Dell announcedthe appointment of Mike Cannon as presi-dent of global operations. Cannon has onecrucial task: cut costs in Dell’s global sup-ply chain and manufacturing.

Dell is determined to reclaim its positionas the best-value computer maker in theworld, and Cannon is just the man toachieve that.

Cannon was chief executive of Solec-tron, a contract electronics manufacturer.He was widely credited with turningaround the company, which had beenweighed down with billions of debt, fallingsales and declining market share.

Dell is facing similar challenges.Cannon, a 25-year manufacturing veter-

an, is now a close confidant of Michael Dell.The men got to know each other at theWorld Economic Forum in Davos, Switzer-land in 2006. Cannon contributed to a high-

powered panel discussion on outsourcing.Dell liked what he heard, and within 13months Cannon had moved to Dell.

Working in secret, Cannon and Dellbegan to formulate a plan. Cannon assem-bled a team who toured all nine of its globalfacilities including Limerick. Every aspectof Dell’s supply chain was pored over with aview to stripping out costs.

A year ago, the company announcedplans to cut its headcount by 8,800 as partof a bid to reduce its operating expenses by$3 billion (¤2 billion) a year by 2010.

Dell Ireland largely escaped the axe,with 250 jobs lost primarily in its sales andsupport unit in Cherrywood, Dublin.According to sources, Dell’s actual head-count in Cherrywood is now about 1,400,some 400 people fewer than its peak of1,800. Only a small number of jobs havebeen lost in Limerick, however.

But the ripple effect of Dell’s decision totighten its supply chain is already bitingthere. In February 2007, Ire-tex let 80 work-ers go after Dell changed the type of pack-ing method it used.

Last February, Sercom Solutions, a DCCsubsidiary, got rid of 120 workers in partdue to a reduction in orders from Dell. Dellalso closed a high-cost plant in its homestate of Texas with the loss of 900 jobs.

Dell is far from finished with its cull.Last month, Brian Gladden, its recentlyappointed chief financial officer, told ana-lysts: “There’s a lot of work left to do.”

The impact of Dell’s cost-cutting on Ire-land remains to be seen. Dell has to do some-thing: its gross margins fell from 20% lastyear to 17% this year. Its revenues are flat.

Always frugal with its R&D spending, itis racing to launch lightweight laptops,servers and even mobile phones. It hasditched its direct sales mantra andembraced selling through stores as well asover the internet.

Last week, Ashok Kumar, an analystwith Collins Stewart in New York, a leadinginvestment banking group, described Dellas “a perpetual turnaround story”. Dell is“lacking any sustainable cost or productadvantage,” he said.

Professor Frank Barry of the TrinityCollege school of business has studied thehistory of computer hardware-makers inIreland. In the late 1990s, a third of all per-sonal computers sold in Europe were madehere, he said. It’s been downhill ever since,with more than 10,000 jobs lost in the sec-tor since the start of the millennium.

“It’s up for grabs what will happen at themoment,” Barry concluded. “If Dell sells offits factories to contract manufacturers theywon’t be tied down by history to Limerick.Closure in such an event is a real possibility.”

However, Barry said it was not inevita-ble that Dell would leave Ireland as Digital,Wang and AST had in the past.

“My guess is they will restructure. Theycould go down the Apple or IBM route andremain in Ireland, but do other things,” hesaid. The IDA has successfully helped theother two companies to switch to highervalue-added services here. It could do thesame with Dell, suggests Barry.

Well-placed sources are not as convinced.They point to the departure of Waterford-born Nicky Hartery, Dell’s head of Europe-an manufacturing, as an indication thecompany is preparing to make tough deci-sions in Europe in the next nine months.

Dell’s Polish plant, in Lodz, the country’ssecond city, is running at a quarter of its

capacity. Just three of its production linesare up and running in a plant that can hold12. This compares with eight lines that areworking in Limerick.

Dell employs 1,200 staff in Poland at anaverage of ¤3 an hour compared with ¤12an hour in Limerick. Units made there arealready being shipped to Britain.

The good news for Limerick is that Dellis not happy with the performance of thePolish plant. The factory is dogged with anemerging trade union issue, which isanathema to Dell’s way of doing business.

Roger Kay, the president of EndpointTechnologies Associates, a market intelli-gence analyst, advised Limerick staff, how-ever, to “start dusting off their resumes”.

“Michael Dell has tried for two years toturn the company around and it still hasn’thappened. Desperate times herald desper-ate measures. You can expect to see harsherremedies in the next little while,” he said.

Wall Street, Kay said, was disappointedboth with Dell’s operating costs and grossmargins. Transforming how it made prod-ucts was the key to changing this.

Louis Miscioscia, the managing directorof Cowen, an American broker, said it madesense for Dell to outsource all of its laptopmanufacturing. Some of these products aremade in Limerick. The company “may stillhave to keep something” when it comes tohigh-end desktops and servers aimed at thecorporate sector. He said it was “logical” for

Dell to move more manufacturing to lowercost areas, but it would have to weigh up logis-tical and tax benefits that favoured Ireland.

DELL’S share price so far this year is down20%. Last week it yet again dipped below$20 despite Michael Dell spending $100mof his personal fortune to support the stock.Tough calls are clearly on the agenda.

Back in 1999, Michael Dell was a hero inLimerick. Just days before, Apple Comput-ers had announced 450 jobs losses in Cork.Standing alongside O’Rourke, Dellannounced his ambitious plans for theRaheen plant. “Dell is here and we’re notleaving,” Dell confidently declared. Nobodyexpects him to make that same boast today.

...now you don’t? Michael Dell oncecreated thousands of jobs in Irelandbut now his firm’s future in Limerickis uncertain, writes Tom Lyons

‘‘DESPERATE TIMESHERALD DESPERATEMEASURES. YOU CANEXPECT TO SEEHARSHER REMEDIES

People at theopening of theLimerick plantby Michael Dellsaw the young

multibillionaire’smagic