Daily Management Review

Dell Intends To End Using 'Made In China' Chips By 2024


Dell Intends To End Using 'Made In China' Chips By 2024
Dell plans to phase out Chinese-made chips by 2024 and has instructed suppliers to significantly reduce the amount of other "made in China" components in its products as part of efforts to diversify its supply chain amid concerns about Washington-Beijing tensions.
According to three people with direct knowledge of the matter, the world's third-largest computer maker by shipments told suppliers late last year that it aims to "significantly reduce" the amount of China-made chips it uses, including those produced at facilities owned by non-Chinese chipmakers.
Dell's goal is to have all chips used in its products manufactured in plants outside of China by 2024.
The move is the latest example of how the US-China tech war is accelerating electronics manufacturers' efforts to diversify production away from Asia's largest economy.
"The goal is quite aggressive. The determined shift involves not only those chips that are currently made by Chinese chipmakers but also at the facilities in China of non-Chinese suppliers," one person with direct knowledge of the matter said. "If suppliers don't have responding measures, they could eventually lose orders from Dell."
According to sources, Dell's domestic rival HP has also begun surveying its suppliers to assess the feasibility of shifting production and assembly out of China.
In addition to chips, Dell has asked suppliers of other components such as electronic modules and printed circuit boards, as well as product assemblers, to assist in preparing capacity in countries other than China, such as Vietnam, according to sources.
Previously, computer manufacturers such as Dell and HP purchased chips from chip developers without regard for where they were manufactured. Some in the industry have been caught off guard by the shift in attitude.
"There are thousands of components for notebook computers, and the ecosystem was so mature and complete in China for years," an executive at a chip supplier to both Dell and HP told Nikkei Asia. "Previously we knew Dell kind of had plans to diversify from China, but this time it is kind of radical. They don't even want their chips to be made in China, citing concerns over the U.S. government's policy. ... It's not just an evaluation, it's not crying wolf. It's a real and ongoing plan, and this trend looks irreversible."
"We continuously explore supply chain diversification across the globe that makes sense for our customers and our business," Dell told Nikkei Asia when asked about its plans. "China is an important market where we have team members and customers to serve," it added.
The computer manufacturer did not elaborate on its diversification plans, but stated that "we have geographic diversity, flexibility, and stability built into our global supply chain to best meet our customers' and partners' needs and expectations."
Washington has increased its pressure on China's chip industry, citing national security concerns.
Last October, it imposed several strict controls on exports to the country. Following the clampdown, top Chinese chipmaker SMIC said in November that some of its US chip developer customers had become hesitant to place orders.
These tensions have given companies renewed impetus to shift the PC supply chain, including assembly, away from China, where it has been deeply rooted for decades. According to data provider Canalys, Dell and HP shipped more than 133 million notebook and desktop computers in 2021, with the majority of their assembly taking place in the Chinese cities of Kunshan, Jiangsu province, and Chongqing, Sichuan province.
Apple intends to begin producing MacBook computers in Vietnam by the middle of this year, implying that the company will have non-China production bases for all of its major product lines.
"The rising geopolitical tensions between the U.S. and China is one of the top reasons that electronics builders are now more serious about executing the plans to build a meaningful alternative production base besides China. That is true for Apple as well as other American electronics makers and brands," Eddie Han, an analyst with Isaiah Research, told Nikkei Asia.
According to Ivan Lam, a tech analyst with Counterpoint, more electronics manufacturing bases will emerge over the next five to ten years.
"The regional production hubs will be emerging in India, in Southeast Asia and also in Latin America, and the shift will be starting from only product assembly to involve more components," Lam said. "We still think it will take a lot of time, but this time the trend is really emerging and that will be a tech supply chain's future."
When asked for comment on its plans by Nikkei Asia, HP stated, "We have a robust supply chain operation in China and around the world to serve our customers."