Western Digital Among Computer Companies in New Parts Exchange
Three leading computer manufacturers and nine of their suppliers, including troubled Irvine disk drive maker Western Digital Corp., will invest $100 million to form an independent Internet marketplace for silicon chips, monitors and other PC parts.
Hewlett-Packard Co., Compaq and Gateway spearheaded the formation of the new San Francisco-area Internet marketplace. Other founding members are chip maker Advanced Micro Devices, contract manufacturers Solectron and SCI Systems, Hitachi, Samsung, NEC, Quantum and Infineon.
The computer companies are following similar moves by auto makers, tire makers, steel firms and others who have recently formed electronic marketplaces to streamline their procurement systems and reduce costs through auctions, reverse auctions and other automation.
“This is an open high-tech exchange that will transform the way the industry optimizes its supply chain,” said Hewlett-Packard Chief Executive Carly Fiorina, who began the 3-week-old effort by calling rival Compaq CEO Michael Capellas.
For Western Digital, struggling to improve its balance sheet after 10 consecutive quarters of losses, the marketplace could help cut inventory costs by letting the company know what computer-makers need instantly, Chief Executive Matt Massengill said.
At first the exchange will focus on selling parts for PCs, servers and printers and will be run by a combination management team representing the dozen companies. The business is expected to be running in three months.
The companies had conducted their own limited experiments of putting supply procedures on the Internet and rapidly agreed to create the new exchange. The new firm thus far has no name, CEO or major software supplier to run the marketplace.
Fiorina, Capellas and other executives said that anyone can join the procurement marketplace, but notable absences in the beginning include Dell Computer Corp., which is the largest U.S. personal computer company, and Intel Corp., the world’s largest supplier of central processing units that power those machines.
Intel has been experimenting with its own Internet procurement system and wouldn’t say whether it will join the new venture. “They’ve got to be able to inter-operate with other marketplaces. No company is going to join just one,” said Intel spokesman Chuck Mulloy.
Intel and Dell have solid competitive reasons for not cooperating, analysts said.
And “if Intel doesn’t participate, it really doesn’t amount to anything much,” said U.S. Bancorp Piper Jaffray analyst Ashok Kumar.
Executives at the purchasing companies declined to say how much they planned to buy through the network.
But they said computer and electronics companies already sell $230 billion worth of goods to each other online.
In a message to Compaq employees, Capellas predicted that the new effort will trim manufacturing and transaction costs by as much as 7%.
“There is an air of a defensive move. They aren’t the strongest players,” said International Data Corp. industry analyst Roger Kay.
Compaq could be one of the biggest beneficiaries of more efficient deliveries of parts because of its excessive inventories and unwieldy range of products, Kay said.
The savings per computer will be small, analysts said. If $300 worth of parts go into a particular model, a seamless electronic supply chain might save $2 or $3.
Still, the effort is a good beginning for an industry that hasn’t always worked in harmony.
“Certainly it has the potential to be one of largest B2B [business-to-business] exchanges,” said Keith Spears, Gateway vice president of business development. “We’ll find out pretty soon.”
