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Dell to cut almost 9,000 jobs

By DAN ZEHR
Cox=20 News Service
Friday, June 01, 2007=20

AUSTIN, Texas =97 Dell Inc. said = Thursday it will=20 eliminate roughly 8,800 jobs over the next year, paring its global = workforce by=20 10 percent and taking another dramatic step in its months-long campaign = to=20 reignite revenues and profits.

Dell's largest job cuts will come across its operations worldwide. = However,=20 spokesman Bob Pearson said the cuts could vary across regions and = business units=20 as the company focuses on "eliminating redundancy and bureaucracy."

Dell has 82,200 permanent workers, including 18,000 in Central Texas, = and=20 5,300 temporary workers worldwide, and the layoffs are expected to = impact both=20 groups, Pearson said. The cuts will come in addition to normal attrition = and=20 hiring, he said.

"Driving it is our continued focus on eliminating redundances . . . = that=20 aren't delivering value to customers," Pearson said.

The layoffs are the latest in a series of sweeping changes that have = occurred=20 since Michael Dell reclaimed the CEO office in January and launched a = campaign=20 to reverse slowing sales growth and regain the momentum that once made = Dell the=20 world's largest computer marker.

The company would not say when the layoffs would begin. In its last=20 large-scale layoffs, Dell cut more than 5,000 jobs in Austin after the = high-tech=20 bust in 2001.

Wall Street analysts have been calling on Dell to reduce its payroll. = While=20 its revenue increased just 2 percent in its last fiscal year, its = workforce had=20 ballooned by 26 percent, with much of the growth overseas.

"An area that I think has been heavy for a while is marketing," said = tech=20 analyst Roger Kay, president of Endpoint Technologies Associates Inc. = "There's=20 too much overhead there, and if you're looking to cut (labor expenses), = that's=20 one of the obvious places to look."

Kay said many of the layoffs could come in Central Texas, where Dell = is=20 headquartered. In a March 29 report to clients, Goldman Sachs analysts = said Dell=20 might reduce the workforce at its test and assembly facilities in the = United=20 States and Malysia.

Dell also announced a stronger-than-expected first quarter, with = revenue up 3=20 percent to $14.6 billion and profits down slightly to $759 million. The = company=20 made 34 cents a share, a penny more than the same period last year.

The results were well above Wall Street expectations of $14 billion = and 26=20 cents a share, according to Thomson First Call.

News of the job cuts and quarterly report boosted Dell's stock, with = the=20 shares up almost 6 percent in after-hours trading to more than $28 =97 = its highest=20 range in more than a year.

Wall Street "got today's good news" with the earnings report, Kay = said, "and=20 tomorrow's good news" with the cost savings from the layoffs.

Bernstein Research analyst Toni Sacconaghi estimated in March that = the=20 "excess" growth in Dell's workforce accounted for roughly two-thirds of = its=20 profit-margin decline over the past two years. In February, Credit = Suisse=20 analyst Robert Semple estimated that a 5,000-employee reduction could = add as=20 much as 17 cents a share to Dell's earnings.

Dell has been making headlines since January, when Michael Dell = reclaimed the=20 CEO title and vowed to restore the company to its former place in the = computer=20 industry. He has replaced much of his top executive team and launched = several=20 initiatives to boost sales, including working more with partners who = resell=20 computers to business customers and altering its strategy of selling to=20 consumers only online or over the phone.

But Dell has said the company was in for some tough quarters while = the=20 strategy changes unfold. Analysts had forecast a slight drop in revenue = and=20 profit for the first quarter. Many also expected that the strong first = quarter=20 results at top rival Hewlett-Packard Co. came at Dell's expense.

Instead, Dell did slightly better than Wall Street forecasts. Pearson = said=20 the gains were largely due to sales of more-profitable products, = especially=20 servers and storage devices. The company's average price per unit = increased to=20 $1,620 from $1,430 in the same period last year.

Dell said its earnings include a charge of 2 cents a share related to = the=20 costs of three ongoing investigations into its accounting. In addition = to=20 inquiries from the Securities and Exchange Commission and the U.S. = Attorney for=20 the Southern District of New York, Dell's board is conducting its own = probe into=20 the company's financial bookkeeping.

In a statement, audit committee Chairman Thomas Luce said Dell = continues to=20 work closely with the SEC and to assess what it has called "accounting = errors"=20 that the investigations identified.

Due to the investigation, Dell postponed its annual shareholders = meeting,=20 originally scheduled for July 20. The company said it would provide = further=20 details on a rescheduled meeting later.

Dan Zehr writes for the Austin American-Statesman.

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