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While it may be cheaper to outsource production of your primary product, quality control might not be as good.

Besides, it seems kinda wrong that a company that manufactures computers is outsourcing manufacturing of computers.

To me, this is the crux of the matter. Dells indecision tells it all. I have had close interaction with folks at DELL and what strikes me, is their apparent indecision when it comes to matters that require immediate attention.

I cannot be convinced that with all the "spying" that goes on withing the PC and Notebook markets, DELL did not know that HP was outsourcing and saving a bunch. They knew but did nothing!

To make matters worse, HP produces better hardware as compared to DELL, in my opinion. So they must be doing something better than DELL.

I was surprised that they still did manufacturing in the states. I didn't really expect that any PC makers still did.

That's brilliant! Just the way to sell fewer desktops!

Dell has had huuuuuge problems [direct2dell.com] fulfilling laptop orders because of supply chain problems. So making their desktops the same (bad) way they make their laptops only makes cents. I mean... sense...

Dells' factories were in the US, where they had to obey all sorts of US regulations that are expensive to obey; like OSHA rules, making it cost-ineffective to have US factories.

By having a contractor do it instead; Dell can avoid the negative political implications of having to say "they're sending their manufacturing overseas". Instead it will be a matter of a private contractor further outsourcing their work later, and Dell will be insulated from the necessary ramifications of their decision to minimize short-term immediate cost at the expense of control & being a good corporate citizen.

Which will give them some protection against legislation, human rights groups, etc, and various issues that normally occur when a company simply builds factories offshore and shuts down US factories.

Their contractors can have the laptops assembled cheaply offshore then shipped to the US.

Although the quality of the workmanship may diminish dramatically (and Dell laptops will be more prone to certain defects such as say perhaps HP laptops), the cost will be much less for them, when they can pay the labor-intensive laptop assemblers the equivalent of US $0.05 an hour instead of having to meet US federal minimum wage.

Cost savings are unlikely to be passed directly to consumers, so pure profit.

At least in the short term, rather clear why they would see it as a clear win.

I work for a print publishing firm, and we've been experiencing a recent surge in customers, because publishers are starting to focus on their core competency, which is content generation. The "other" business of printing, quality control, packaging, and distribution is now being out-sourced to other companies who specialize in squeezing the last dollar of efficiency out of this (manufacturing it cheaply, transporting it somewhere cheap to be processed, then ship it out everywhere else), and whose entire purpose in life is to efficiently produce, and distribute printed matter.

I'm sure Dell has complete control of the design of their hardware, where every nut and bolt goes. And the specifications will no doubt be very detailed, if my experience in the print industry's any indication.

It's just a matter of letting the organization that does something very well do it, rather than trying to do everything in-house.

CEO Michael Dell, October 2007, on being asked what he'd do if he were CEO of Apple:

"I'd shut it down and give the money back to the shareholders. [cnn.com]"

Since then DELL stock has gone up by 72%... while AAPL has gone up 3080%.

Dell's basic problem [daringfireball.net] has been known for a while. They don't do anything unique. They were one of the first to "get" just-in-time custom manufacturing and they rode that horse for a long time, but everything they do, others can do better -- and apparently do.

Innovation, if it can be sustained, always wins over efficiency, because innovative hardware and software design can empower users by orders of magnitude, while efficiency gains approach an ideal asymptotically.

1. Take everything that made you successful.
2. Throw it away.

Well, I mean, Dell became number 1 in PCs due thanks to a model where you could configure your PC in the web, get it built in good time with a guaranteed level of quality and receive it at your home/office.

First they started adding physical stores to the mix. That's perhaps not too bad, but certainly adds problems of inventory that previously were unknown.

Now they are trying to make themselves virtually indistinguishable from other providers by selling the one piece of their company that made them different, their make-to-order factories.

I suppose that's just one more example of clueless executives applying the reduce-costs recipe because that's the thing they learned in their MBA's. Because that's the easy thing to do, because the costs are written and can be studied. I suppose you need some kind of inventive mind to think ways about adding to the income column, instead of subtracting from the costs one. But what do I know? After all, they make fatter salaries than I do.

Is that contract manufacturers supposedly offer efficiencies because they don't have to listen to Dell's marketing considerations. It would seem to me, then, that Dell's marketing considerations would need to change and all this really is is a low wage subsidy of a fundamentally flawed business.

I'm really sick of MBA's getting American companies out of manufacturing because they lack the engineering knowledge and are too lazy to make it work. If there a company really well led by an MBA? I mean, President Bush has an MBA... look how well he's done.

Right now, the U.S. government is one of the largest purchasers of Dell hardware. It used to be IBM they purchased from until IBM sold its PC division to Lenovo. Now the government won't buy Lenovo because their afraid that the machines might be compromised to spy on the user. If Dell moves their factories overseas there's a good chance that the government may stop buying.

Eight years ago, I was working for Celestica, a Canadian company, building Dell servers. They were outsourcing heavily even then.
Interestingly, given the slant of the above article, we were also building HP servers.
A little observation about the difference in the two companies and their style (or, more to the point, what they were willing to pay for): HP servers were shorts-tested, power-up functional tested, built into boxes, temporary HD's installed, a full OS install done, the boxes run for 2 hours, turned off, the OS *reinstalled* and a complete functional test done, and shipped out.
In contrast, the Dells were shorts-tested, and 1 out of 3 were power-up functional tested, and after that they were shipped out to the company that turned them into complete systems.
It's possible that the next company down the line did a full burn-in functional test. But HP did that, too, in addition to the burn-in functional test we did.