Dell plant in N.C. to close in 2010

From day one, the Dell Inc. computer-assembly plant in Forsyth County had an expiration date.

The local community and 905 employees learned yesterday that the date will be around Jan. 31 - nearly four years and four months after it opened with great fanfare and promise in October 2005.

Dell said that about 600 employees will be let go by mid-November, while the others will remain until the 750,000-square-foot plant closes.

“This is a major blow to North Carolina and to the Triad economy,“ said Mike Walden, an economics professor at N.C. State University. “The North Carolina Dell plant is a casualty both of the global recession and the ever-changing dynamics of the technology manufacturing field.“

Dell’s decision should not have come as a surprise.

The plant’s lifespan was projected to be at least 15 to 20 years when the deal was announced in 2004. But some analysts predicted the plant wouldn’t last that long for two reasons - that the desktop market was nearing a saturation point and that laptop computers were expected to overtake desktops in popularity.
Both came to pass much sooner than expected.

Since Dell’s plans for a Forsyth plant surfaced, desktops dropped from representing 51 percent of its revenue to 26 percent.

Because Dell had no plans to assemble laptops here - it’s less expensive to do overseas - and server production never materialized as hoped, there was no Plan B.

In September 2008, The Wall Street Journal reported that Dell was considering selling some or all of its manufacturing plants as part of its intensified effort to cut $4 billion in annual expenses.

Still, local officials and analysts had expected the plant to stay open until at least September 2010 - when Dell would have qualified for the full value of its local incentives package.

The company said it is closing the plant “as part of an on-going initiative to enhance the long-term value it delivers to customers by simplifying operations and improving efficiency.“

“This is a difficult decision, especially for our North Carolina colleagues, but a necessary one for Dell customers and our company,“ said Frank Miller, the vice president of Dell’s Public Business Unit Supply Chain.

David Frink, a Dell spokesman, said that employees had not been told they could not speak to the media. But Dell security walked the property yesterday afternoon, making sure the media stayed off company premises.

The plant closing represents the third largest job cut in Forsyth in the past 22 years. It is topped only by the 1,700 jobs cut by R.J. Reynolds Tobacco Co. in September 2004 and the 1,300 jobs eventually cut by Wachovia Corp. as part of being bought by First Union Corp. in September 2001.

The Dell employees are expected to learn more this week about the timing of their departure, Frink said. They will enter a tough job market, with a Triad unemployment rate of 11.3 percent in August.

The $115 million plant was hyped in 2004 as the largest and highest-profile economic project in Triad history - a creator of at least 1,500 jobs that had local officials beaming with pride over the national spotlight the region had just landed.
Two studies in 2004, neither commissioned by Dell, projected the creation of up to 6,500 indirect jobs connected to the plant - at restaurants, hotels, stores, construction companies and service providers.

The plant was touted as a prime example of the progress that the local and Triad economies had been making in transitioning from traditional manufacturing of apparel, furniture and tobacco to economies based on health care, biotechnology, advanced manufacturing, services and transportation.

Dell also caught national attention and notoriety for securing up to $267 million in state incentives - then a record - and $37.2 million in local incentives.

Dell had to have 1,700 full-time or equivalent jobs, also counting suppliers, in the plant by September 2010 to fully qualify for the incentive packages. The plant topped out at just over 1,100.

Allen Joines, the mayor of Winston-Salem, said he received assurances from Kip Thompson, the vice president for facilities of Dell, that the company “will honor its commitment to repay the $15.56 million the city has provided.“ David Plyler, the chairman of the county Board of Commissioners, expects a similar repayment of county incentives.

“The city regrets the closing of this facility, particularly for the impact that it will have on the employees,“ Joines said.
“We understand the changing nature of the computer industry, and that’s one of the reasons we fought to have such strong protection for the city in case things changed down the road.

“The city is well-protected and will be repaid every penny of its upfront costs and annual incentive payments. In addition, the city will receive title to approximately 90 acres of land adjacent to the Dell building.“

Keith Crisco, the N.C. Commerce Department secretary, said that “the state’s performance-based incentives program includes the tools it needs to address a facility closure. We will be reviewing all details as more information becomes available.“

The plant closing also marks the end of an era in large-scale U.S. computer production.

The guts of Dell’s business model for most of its corporate life was assembling customized computers - comprised mostly of foreign-made parts - and delivering them within one to five days.

But in recent years, Dell lost market share to competitors who sold generic computers to electronic and discount stores. As Dell began selling generic computers, its sales decline lessened.

“PC buyers care more about cost than custom today,“ said Jayson Noland, an analyst with Baird. “Dell’s model was designed for build-to-order, which is generally being transitioned to build-to-inventory.

“Generally speaking, a PC buyer can still spec-out a product, but the lead-time is going to be extended as local final assembly is being slowly eliminated.“

Frink said that employees would receive two months of pay, an additional week of pay for every year they worked at the plant, two months of COBRA health insurance coverage, a bonus for fiscal year 2010 goals that were met at the plant, and two months of outplacement services help.

He would not comment on how Dell will decide which employees will stay through January.