updated 07:00 pm EDT, Tue April 1, 2008
Dell looks to save $3b/yr
Dell on Tuesady announced that it has plans to cut atleast 8,800 jobs as part of a three-year plan to cut costs by more than $3 billion. On Tuesday, the second-largest PC vendor said that the Texas-based company would reduce product costs across all areas, including design, manufacturing and logistics, materials and components, and operating expenses. It also said it would close its desktop manufacturing facility in Austin, Texas as it sees trends in consumer buying shifting to notebooks and an assessment in its "global manufacturing and logistics network." The shifting trend towards mobile computing was echoed by research firm Gartner, which last week predicted that that shipments of computers will grow a healthy amount in 2008 but would largely driven by less expensive and more flexible portables.
"Over the last three years, driven by the massive shift in customer preference for notebooks - especially among consumers, industry forecasts for the rate of growth of desktops have declined from 10.8 percent to 3.6 percent," Lynn Tyson, vice president of investor relations at Dell noted on the company's investor blog. "And the desktop to notebook mix in the U.S. has declined from a 70/30 split in 2005 in favor of desktops to a 50/50 split today. Our fiscal fourth quarter of last year reflects this change as we grew notebook units year over year by 37 percent and desktops by 10 percent."
In the posting, Lynn also said the cost savings the company expects would be used to both strengthen its competitive position and invest back into the business and to improve profitability, but that market conditions would dictate the relative investments in each of the two areas.
Dell said it has already cut its workforce by 3,200 jobs over the last nine months, which will help it realize the initial cost-cutting benefits in the second half of this fiscal year. Dell expects to continue cut 5,600 additional jobs in the coming months, but did not provide a time frame.
The company also announced it is undertaking a strategic assessment of ownership alternatives for its Dell Financial Services financing activities, indicating that it may sell or spin-off its financing arm. Dell claims that the re-assessment of the comes after it acquired the remaining 30 percent of DFS from its partner CIT in December of last year and is not related to the current market conditions. Dell believes that its reserves are adequetely funded and that less 20 percent, about $1.6 billion, of its lending is to sub-prime customers.
Last week, a fire in LG Chem plant caused a shortage of notebook batteries for Dell and other PC manufacturers; while were no immediate plans to raise prices for regular systems, the company has already increased prices of additional lithium-ion battery packs in an effort to preserve its reduced supply.