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The plan to cut another US$1 billion out of the supply chain, announced by Hewlett-Packard (HP) chief executive Carly Fiorina in a recent analyst meeting, may have caused smiles among investors but the company’s suppliers in Taiwan are not at all happy.What upsets them is the claim that HP is willing to sacrifice the interests of its global suppliers to offer lower prices to consumers. Fiorina made the remarks in a closed-door analyst meeting on June 2 in New York, when asked whether HP would be negatively impacted if it continues to press the profitability of its suppliers, sources said.Taiwanese suppliers are estimated to account for about 90% of HP’s global hardware procurement, sources said. In 2002, HP’s procurement in Taiwan amounted to US$14.7 billion, and the company originally expected to grow spending to US$16 billion this year. Taiwan produces a variety of IT products for HP, ranging from notebooks, motherboards and displays to PDAs, digital still cameras (DSC), desktops and servers.HP’s current business partners in Taiwan include Quanta Computer, Compal Electronics, Asustek Computer, Wistron, Arima Computer, Inventec, First International Computer (FIC), Elitegroup Computer Systems (ECS), High Tech Computer (HTC), Foxconn Electronics (the registered trade name of Hon Hai Precision Industry), AU Optronics (AUO) and Lite-On Technology, according to sources.To most of the suppliers, HP’s aggressive price-cutting strategy, which began to cause headaches soon after HP’s merger with Compaq Computer, is not news, but the question is how far the companies are capable or willing to accommodate HP, which has been consistently testing its suppliers’ bottom lines.Many of HP’s major contract makers in Taiwan have reported sliding gross margins, as companies across the board have been complaining in private about HP’s aggressiveness in price-cutting. Some companies, like Arima Computer, Asustek Computer, Micro-Star International (MSI) and Altek, have reportedly decided to not pursue potential orders from the brand company. According to sources, Arima was ranked by HP as the best notebook supplier in overall performance in 2001 and 2002. HP’s Taiwan office declined to comment.The major brands are so aggressive that their suppliers can barely meet their costs. Aggressive price-negotiation may turn out to be detrimental to both sides if the suppliers accept orders at unreasonably low prices and then find it difficult to maintain product quality, the companies said."It’s no big deal to lose orders from HP, since we are not going to make money anyway," said an engineer working for one HP supplier. "The financial report will look awful, but you get the HP orders only if you want to boost the (shipment) volumes," he added.Compal president Ray Chen, however, said that the second-largest notebook maker in Taiwan is willing to sustain "temporary" losses in exchange for long-term benefits. HP is trying to improve its performance just like all other enterprises. The key for Taiwanese contract manufacturers to survive is to increase their own competitiveness and make themselves indispensable partners for the major brand, he said.As some of HP’s contract manufacturers have dropped out of the game, those that manage to stay should be able to benefit more from business with HP eventually, said Chen.With Arima and South-Korea based LG Electronics (LGE) reportedly retreating from the battlefield, Compal expects to gradually build up its business with the brand company, which is now expected to be left with only three notebook suppliers worldwide. "So as HP is flourishing, Compal is flourishing," he said.Source: DigiTimes