Dell outsourcing plan may be tough to execute

By Franklin Paul and Jim Finkle

NEW YORK/BOSTON (Reuters) - Dell Inc (DELL.O) plans to make fewer computers itself and rely on contract manufacturers to cut costs, but the company could find it hard to get rid of its North American factories at a good price.

The world's second-largest PC maker said in April it would outsource more manufacturing, and the Wall Street Journal reported on Friday that Dell was trying to sell most of its factories within the next 18 months.

Analysts said the most likely buyers of Dell's plants are big contract manufacturers, most of which are based in Asia because production costs are lower there.

They questioned how much cost savings Dell can get, since it would likely have to give the buyer of its plants an accompanying personal computer manufacturing deal.

"They will have to lock in a long-term production contract as well because no one will buy facilities unless there's business to go with it," Cross Research analyst Shannon Cross said. "I just don't know how much they get for them. They may also transfer the manufacturing assets to a partner."

Dell wants to boost its profit margins to levels enjoyed by rivals such as Hewlett-Packard Co (HPQ.N) and pour some savings into new product development, analysts said.

Some 58 percent of Dell's 5 million square feet (465,000 sq m) of manufacturing and distribution space is in the United States, according to regulatory filings. Twenty-two percent is in Asia and 20 percent is split between Ireland and Poland.

It has manufacturing plants in Brazil, Florida, North Carolina, Ohio, Tennessee and Texas.