DELL Plans Expansion in China - Analyst Blog

Despite losing the 3PAR Inc. (PAR) bid to its rival Hewlett-Packard Co. (HPQ), tech-giant Dell Inc.'s (DELL) growth plans appear to be on track. Recently, the PC maker announced a major expansion plan in China to set up the second operating unit in the country.
 
Dell will open a manufacturing and customer support center in Chengdu, situated in Western China. Dell expects the unit to be operational by fiscal 2011 and create 3000 job opportunities. Moreover, Dell's effort in this expansion complements the Chinese government's strategy to develop new trade relations.
 
China's ‘Go West' strategy is aimed at developing economic cooperation with its Western neighbors and cement trade ties with Central Asian countries. We believe that Dell's expansion will help China establish new business ties and also accelerate the company's Asian reach.
 
Along with Chengdu, Dell plans to open an additional office in its existing Xiamen platform, situated in southeastern China. This proposed expansion will add another 500 employees to the Dell family.
 
According to Dell, the overall China expansion will cost more than $100 billion over the next 10 years on facilities, employment, research and development, as well as purchases from Chinese suppliers. We believe this massive capital expenditure is reflective of Dell's confidence in the region, boosted by a string of successes seen here.
 
To date, Dell China has recorded solid revenue growth of almost 11 times over the last decade. In the recently reported second quarter, sales in China grew 52% year over year. According to the industry analyst firm IDC, demand for computer systems in western China will grow at a 21% annual rate through 2014. We believe that with a talented workforce and well-planned execution, Dell will be able to capitalize on the emerging opportunities in China.
 
We remain confident about Dell's expansion strategy. Apart from its Chinese expansion plans, Dell is determined to enhance its enterprise business, as mentioned at its Analyst Day.
 
Moreover, we are encouraged by Dell's attempt to shift its focus from PC and server roots to becoming a data-center vendor with a wider scope. However, soft demand from the Consumer segment, high debt level and stiff competition in the computing and emerging cloud computing space are concerns.
 
Currently, we have a short-term Hold rating on Dell shares, which equates to a Zacks # 3 Rank.

 

 
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