3Com Corp said yesterday that it will sell its Palm Computing manufacturing site and the 550 staff who make the devices in Salt Lake City, Utah, to Manufacturers’ Services Ltd (MSL). The deal takes 3Com’s annual subcontracting spending to well over $400m, sources close to the company said, although would not disclose how much this individual deal was worth.

As well as the Palm Computing manufacturing, MSL will also take over the manufacturing of 3Com’s PC card business, including modems and LAN connect products. From the end of November MSL will be the new owner of the facility. In addition to the manufacturing staff in Salt Lake City, 3Com employs roughly 300 people in sales, marketing and engineering, who will stay at 3Com. The company said it has no plans to outsource its remaining manufacturing plants in Singapore, Santa Clara or Dublin.

The idea is to increase the capacity of the plant as it is not operating at full volume and is therefore not efficient, said a spokesperson for 3Com. On the Palm side, MSL also manufactures IBM’s WorkPad, which is modeled on the Palm and uses the Palm OS, which will be added to the production line. He said that MSL also manufactures modem technology for Motorola, Ericsson, NEC, Rockwell International, HP, IBM and Iomega.

A key operational goal for 3Com is to deliver high quality products to our customers as quickly as possible at the best possible cost, said John McClelland, senior VP of 3Com’s supply chain operations. He called it: an unintended consequence that this deal should have occured as 3Com is making moves to take its Palm towards an IPO.

MSL, headquarted in Concord, Massachusetts, did not have a facility on the West Coast until 3Com’s 150,000-square foot plant, which it claims will give it significant presence in the region. MSL employs around 4,000 staff in manufacturing, logistics and after-market support in North American, Europe and Asia. From the Salt Lake City operation, the company plans to offer test development, design and manufacturing capability, advanced surface mount printed circuit board assembly, box build and in-circuit functional testing. MSL said it will also provide order fulfillment, shipping finished goods to the customers’ distribution channels.