Market Overview

Will Apple, Dell And Hewlett-Packard Follow Lenovo And Build Notebooks In-House?

Will Apple, Dell And Hewlett-Packard Follow Lenovo And Build Notebooks In-House?

Lenovo (OTC: LNVGY) is on the verge of a major shift that could change the landscape of outsourced manufacturing.

According to DigiTimes, the Chinese tech giant wants to produce 60 percent of its notebooks in-house next year. In 2013, the company outsourced 75 percent of its notebook production to Taiwan-based ODMs (original design manufacturers). Lenovo took on the remaining 25 percent.

This is a massive transition for the ThinkPad developer. It is also an unlikely move for an industry that has relied on third party producers to handle its manufacturing duties.

In 2014, Dell (NASDAQ: DELL) only plans to produce 30 percent of its notebooks in-house. Hewlett-Packard (NYSE: HPQ) is expected to outsource most of its notebook production as well.

Related: Lenovo Continues Acquisition Hunt As Smartphones And Tablets Top PC Sales

Instead of building iDevices and MacBooks in-house, Apple (NASDAQ: AAPL) employs Foxconn, the leading manufacturing arm of Hon Hai Precision (OTC: HNHPF).

By shifting to in-house production, Lenovo could be looking to tweak its supply chain and improve its margins. In doing so, the company will also incur an immense amount of responsibility -- and new in-house expenses -- that it did not have before.

Suppliers should not feel left in the cold, however. After making the switch, Lenovo is still going to need a cornucopia of supplies, including processors from Intel (NASDAQ: INTC) and NVIDIA (NASDAQ: NVDA).

It would be a much bigger problem if Samsung (OTC: SSNLF) decided to move away from outsourcing. Right now, the South Korean tech giant produces a number of components in-house, including flash memory, displays and hard drives. Samsung strengthened its hard drive production after becoming the majority shareholder in Seagate (NASDAQ: STX).

Similar to Lenovo, Samsung is reportedly planning to increase its in-house production rate. Long-term, this could be detrimental to Korean- and Taiwan-based suppliers and ODMs.

For the time being, Apple is unlikely to follow suit. But it will be interesting to see if Samsung and Lenovo can effectively implement this new strategy. If so, Apple -- the firm with the best margins and the best supply chain in technology -- might be tempted to do the same.

Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.

Louis Bedigian is the Senior Tech Analyst and Features Writer of Benzinga. You can reach him at 248-636-1322 or louis(at)benzingapro(dot)com. Follow him @LouisBedigianBZ


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