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issue: October 2005 APPLIANCE Magazine

European Report
Insourcing: PC Production in High-Cost Germany

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by Paul Roggema, Europe Correspondent, APPLIANCE Magazine

Europe has had its share of bad news on the outsourcing front, especially in regards to high-wage Germany, but German PC maker Fujitsu-Siemens Computers (FSC) poses an interesting contrast.

FSC’s annual report, for the period ending March 31, 2005, showed 6 billion euros (approx. U.S. $7.4 billion) revenue, for a 14-percent increase from last year and reflecting 95 million euro (approx. U.S. $118 million) profit.

German labor for making custom PCs is more expensive than Asia’s estimated cost of less than 1 euro (approx. U.S. $1.24) per unit. Still, the labor cost in Germany is estimated at only 8 euros (approx. U.S. $9.24) per PC, and cost for airfreight from Asia is estimated at 30 euros (approx. U.S. $37.22). For a custom, build-to-order equipment maker, the European manufacturing location is also crucial for timely delivery.

Three-quarters of FSC’s production is now custom-made. That is made possible by a sophisticated planning system and by in-house motherboard manufacturing. Suppliers are stationed near to the manufacturing center and are linked to the OEM’s automated planning systems, allowing them to deliver supplies “just-in-sequence.”

FSC’s overall manufacturing strategy results in a 50-euro (approx. U.S. $62) higher sales pricebut a failure rate that is half the PC average and Best-In-Class ratings from European computer resellers.

On-Site At Electrolux: Half-Year Figures

There was good and bad news when APPLIANCE magazine attended a presentation of half-year figures from Swedish appliance giant Electrolux. Sales were up. But, due to higher material costs, operating income was down. Electrolux said prices could be raised somewhat and product mix could be improved. Electrolux is introducing new large-capacity and talking washing machines, side-by-side refrigerators, a compact dishwasher, and gas-on-glass cooktops.

Second quarter sales were U.S. 4.5 billion, up 5.8 percent (adjusted). Material costs were up $302 million, and Electrolux estimates $131 million of that could be compensated for through cost-cutting efforts. European sales were $1.3 billion, with unit shipments up just 0.6 percent (although for Eastern Europe unit shipments were up 3 percent).

Sadly for European workers, the process of consolidation and relocation continues, with the closing of a refrigerator plant in Spain and a lawn-mower plant in Italy. Electrolux president and CEO Hans Stråberg said the company tried to raise prices in Europe, but the move stalled when appliance competitors failed to follow.
On the subject of German labor costs, Stråberg noted that competitors BSH Bosch und Siemens Hausgeräte GmbH (Munich, Germany) and Whirlpool Corporation (Benton Harbor, Michigan, U.S.) have more manufacturing in low-wage countries. He said a solution must be found to keep Electrolux competitive on this front.

Electrolux expects some growth in Europe in 2005, but, again, higher material and components costs will have an adverse impact on operating income. In several markets, the Electrolux brand for large appliances is being re-introduced and brand build-up will continue. For the full year, operating income is expected to be somewhat lower.


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