US computer giant Dell has used the news of a 51 per cent drop in second-quarter profits to $502 million (€392 million) to announce the expansion of its operations in central Europe.

The company is increasing spending and hiring in its new German operation, while increasing pressure to cut costs, and is likely to speed up the timetable for a new manufacturing plant in the central Polish city of Lodz. That could mean changes ahead for Dell's Limerick-based manufacturing base that employs 3,000 people and exports computer equipment to all of Europe, from Britain to Russia.

"The Dell strategy is to deliver what people want.

"To deliver from Limerick to Germany or Moscow is a huge logistical feat.

"With a manufacturing plant in central Europe you gain clear competitive advantages," said Mr Stefan Böttinger, communications manager for Dell's new operation in the eastern German city of Halle.

Dell has made no secret of its plans for a new European manufacturing site.

But it declines to confirm Lodz as the location.

However, this has been an open secret in Poland after the Polish government all but announced the new plant earlier this year, infuriating Dell representatives who thought they were still negotiating.

A Dell spokesperson in Ireland said the new plant will complement the Limerick facility, but admitted it will be in a better position to supply European markets supplied at present from Limerick.

An average industrial wage in Poland of 2,648 zlotych (€677) a month will play a significant role for a company anxious to "accelerate cost initiatives", as chief executive Kevin Rollins said yesterday.

"While we are disappointed with the results for the quarter, we are taking the necessary actions to correct missteps and improve our results for the long term," he said.

He promised greater investment in service and support and improved price management.

The company has had a run of bad luck of late.

Earlier this week it announced it was recalling up to four million laptop batteries that tended to overheat and explode.

Dell and Sony, the battery manufacturer, are expected to share the cost of the operation.

The Texas-based computer company also said it is co-operating with an informal investigation by the US Securities and Exchange Commission (SEC) over "accounting and financial reporting matters for certain past fiscal years".

The company is conducting its own internal investigation.

All of these developments have hit Dell's stock price. Last month it hit a five-year low of $19 itself a 50 per cent drop in the last 12 months.

Meanwhile, rival Hewlett-Packard announced a jump in profits and market share earlier this week.

"Dell has a lot of flexibility with their global opportunities and they can balance operations based on price," said David Chasdi, senior manager at the Industrial Investment Council (IIC), which has attracted Dell and over 100 other multinationals to eastern Germany.

Salaries of just 81 per cent of the German average - itself lower than average wages in Ireland - was just one factor that attracted Dell to open its new service centre in the eastern city of Halle last year, serving German corporate clients and SMEs.

Currently employing 540 people, the company expects to employ over 1,500 people here in two to three years' time, on top of the 500 people already employed in Frankfurt.

This eastern German region - just 600 km from Lodz - with a catchment area of one million people has become an attractive base for technology companies, earning the title "Silicon Saxony".

It is already as one of the leading areas for research and development in the world with chipmaker AMD based in nearby Dresden.

Yesterday Dell announced it will launch Dimension desktop computers using AMD chips in September and AMD-based servers by the end of the year.

Another boost for business in the "Silicon Saxony" area is the relocation of Deutsche Post subsidiary DHL, the world's largest logistics company, from its current European hub to a site near Halle-Leipzig Airport.

Mr Böttinger of Dell in Halle is confident that Dell's operations in the central European region will grow in the future, with attractions far beyond lower salaries. "Germany has a lot to offer in many areas.

"You still find the best trained technical people to offer IT solutions, particularly with the many universities in the area," he said.