The Laptop Supply Chain

Carl Bialik from the WSJ writes "When a U.S. consumer orders a laptop from HP or other big sellers, how does the machine get made? Often via a complex supply chain in Taiwan and China, shaped by rocky cross-Strait relations, according to the Wall Street Journal: 'Outsourcing to low-cost, high-quality Taiwanese manufacturers has helped make Dell and H-P the world's top two PC companies in terms of sales...But the relationship between U.S. computer firms and their third-party manufacturers can be tricky. In the struggle to retain an element of control over their suppliers, H-P, Dell and others play contract manufacturers against each other to keep prices falling and ensure no supplier gains too much leverage.'"

Comments

uh?

[Mr_Silver]

In the struggle to retain an element of control over their suppliers, H-P, Dell and others play contract manufacturers against each other to keep prices falling and ensure no supplier gains too much leverage

... and how this is different from every other industry?

As a consumer, if you want your products nice and cheap, then these sorts of negotiations are par for the course. If they didn't do it, you'd take your money elsewhere.

Re:uh?

[dsginter]

If they didn't do it, you'd take your money elsewhere.

There's really no "elsewhere" in the laptop market. All manufacturers make dirt upon initial sale but then rape the customer when they break the LCD or need a replacement battery. This is why the laptop industry needs an open laptop form factor - LCD swaps would be about $150 and batteries would be $20.

FWIW, I actually do laptop repair on the side and I've noticed that every battery pack contains the same 3.6V cells. There *is* a standard, the vendors just put the cells into proprietary cases so we can't interchange them.

Re:uh?

[mikael]

Look at the X-ray photographs of laptops. Another one here.

You can clearly see that each "single" battery, is a serial arrangement of eight smaller cells.

Who knew?

[MarkGriz]

"... shaped by rocky cross-Strait relations"

Who knew that laptop technology was influenced so much by country music. And, why is he so cross anyhow?

Re:Build

[ID000001]

There are barebone notebook with just the case and motherboard these day (Many avaialble at www.newegg.com for instant) and let you have some flexiablity in setting up a notebook yourself as far as component goes. Brand like Acer, ECS are very popular.
Still much more limiting then a desktop PC, but it is a far cry from a few years ago where you can only have one model of video card and one properity casing CD-Rom drive you can upgrade to a writer for $200.

That's great!

[dextroz]

In a few years, no one on continental America will know how to put a laptop together :-/ But they'll be great at tracking DHL/AirBorne and of course flipping burgers ;-)

Lower price...

[ID000001]

means at least the saving are pass onto the consumer. Admittedly though, there are not a whole lot of choices when you buy a laptop. More often then not you will not be told where the laptop are made unless you can see the underside of it.
Since customer perfers price over quality in general, it is not really the companies fault to find the cheapest supplier.

Interesting...

[lucabrasi999]

From TFA:

Outsourcing to low-cost, high-quality Taiwanese manufacturers has helped make Dell and H-P the world's top two PC companies in terms of sales. International Business Machines Corp., which outsourced less than half of its laptop production, according to Merrill Lynch, and operated its own factory in China, consistently lost money on its PCs. It sold the business this year to China's Lenovo Group Ltd., which has used Taiwanese companies to make most of its notebooks in China.

So, IBM used to keep most of it's own laptop production in-house. Which may partially explain why the ThinkPad's are, by far, the best laptops around. Let's see what happens to the ThinkPad now that Lenovo runs the show.

Re:Interesting...

[lucabrasi999]

Lets put it this way, if IBM had upped their prices to the level they needed to in order to make the same money as HP and Dell, would you pay that extra money to get the quality? And would enough people pay that extra to help IBM succeed in a volume business, or would their prices have to rise still further to ensure profits in a niche.

Pre-Lenovo, the IBM laptop tended to be significanly more expensive than any of it's major competitors (not counting Apple). Therefore, IBM had already included the higher quality of their laptop in the price. The ThinkPad is a very popular purchase amongst corporations. Companies were willing to pay the extra price for the perceived quality and service that IBM provided.

IBM products were good, but too cheap for IBM to make money on it.

Last year, IBM made a profit on the PC and laptop business. But, they only made 1 or 2 percentage points profit on that hardware. I just checked HP's web site and they reported a profit margin of 2.1% on their PC's and Laptops for the first quarter of 2005. So, the margins IBM was making were comparable to at least one of it's main competitors.

And their opinion was clearly that technical superiority meant nothing in a market that appears to be dominated by price.

I think you are right on this point, but I would have phrased it differently. IBM's opinion was that laptops and PC's have become a commodity and the profit margins were too thin to justify remaining in that line of business. IBM does still has a "toe-hold" in the PC/laptop business, since it owns a minority share of Lenovo.

Imagine the effects of a Chinese attack on Taiwan.

[Infinite Entropy]

I always worried about the effect that any Taiwan-China conflict could have on the supply of computers. It seems almost all motherboards are made in Taiwan and a whole lotta RAM.

Taiwan: Laptops are just the tip...

[Nova Express]

...of Taiwan's importance to the Gloval High tech economy. Even more important are the roles of Taiwan semiconductor foundry houses like TSMC and UMC. Taiwan dominates the foundry business (IBM and Singapore's Chartered have significantly lower volumes), and with more and more chip design firms going fabless, an ever-greater percentage of cutting-edge chip designs flow through Taiwan. Indeed, it would be hard to find a computer or MP3 player sold today which didn't have a part fabbed in Taiwan.

Now, imagine what would happen to America's high tech industry if Communist China invaded...

The big picture: American industrial/tech decline

[intnsred]

Having our laptops and PCs made this way may seem great -- for as long as the Chinese keep funding our ever-increasing trade deficit by taking our declining dollars and purchasing our treasury bonds.

Dell and HP are at least keeping some design and marketing jobs in the US. :-/

But if they follow the lead of many other American companies (e.g. GE), that design will be out-sourced overseas. American corporations are being destroyed by their own greed and shortsightedness. Many American companies are now only shells -- they're a brand name with a US-based sales and marketing force and everything else done overseas.

Fool yourself if you want, this is not a sustainable way of doing business. Consumers may think they've got it great now, with prices going down. But those same consumers are transferring wealth overseas and we're only able to do it now because the rest of the world allows the US to get into debt that no developing country could -- we can do it only because of the dollar's dominance.

Eventually that dollar dominance will evaporate and we'll realize that we transferred huge amounts of wealth and industrial power to foreign countries, all based on an ideology of greed and "free" trade.

Now, none of these are my own ideas; this is seen clearly by those on the political left and also by "traditional" conservatives. People like Reagan's Asst. Sec. of the Treasury and former Wall St. Journal editor Paul Craig Roberts have written extensively on this foolish but deliberate economic suicide. The mainstream corporate mass media avoids this -- it may upset people, cause them to question the conventional wisdom, or, worse in their view, impact their short-term profits.

Laugh and enjoy it while we can; things that can't go on forever don't.