Dell Lays Off 8,000; 1Q Earnings Sag
Friday, June 1, 2007; 12:19 AM
DALLAS -- Dell Inc. beat Wall Street predictions in its first-quarter earnings report but said it would eliminate 10 percent of its work force over the next year as part of a broad plan to trim costs and become more competitive with rivals.
The computer maker said it earned $759 million, or 34 cents per share, in the three months ended May 4, down slightly from $762 million, or 33 cents per share, in the year-ago period. Sales rose nearly 1 percent to $14.6 billion.
The results beat analysts' predicted earnings of 26 cents per share on sales $13.95 billion, according to a poll by Thomson Financial.
Investors also seemed pleased, as shares rose $1.58, or 5.9 percent, to $28.49 in extended trading. Before the preliminary report was released Thursday afternoon, Dell shares gained 69 cents to $26.91. The stock has traded in a 52-week range of $18.95 to $27.89.
Since returning in January to lead the company he founded, Michael Dell has overseen a shake up of his top executive ranks and made numerous other changes to improve customer service and reclaim market share.
In the earnings release, the company said it was reviewing costs across the board and that the job cuts _ equal to more than 8,000 of Dell's more than 81,000 full- and part-time employees _ would vary across geographic regions and customer segments to "reflect business considerations as well as local legal requirements."
"While reductions in head count are always difficult for a company, we know these actions are critical to our ability to deliver unprecedented value to our customers now and in the future," Michael Dell said in a statement.
Barry Jaruzelski, management consultant at Booz Allen Hamilton, was among the analysts who said it appeared Michael Dell was finally making a fresh stamp with by taking some bold steps to fix problems.
Round Rock-based Dell has continued to struggle to regain market share after Hewlett-Packard Co. ousted it from the top spot in worldwide computer shipments last year. In the first quarter, HP kept its lead over Dell with about 4 percent more shipments, according to tech research firms IDC and Gartner Inc.
Besides layoffs, Dell earlier in May broke from its long-standing direct-to-customer business model with a plan to sell computers through Wal-Mart Stores Inc., the world's largest retailer, beginning June 10. And Dell also recently began selling consumer PCs pre-loaded with a version of Linux, an alternative to Microsoft Corp.'s Windows operating systems.
"He's clearly not waiting around to do things," Jaruzelski said. "He's certainly not being timid about moves he's making."
A company of Dell's size is bound to shed jobs in order to cut costs, but the savings from any layoffs likely won't improve the company's finances until next year at the earliest, added Philip Durell, senior analyst at The Motley Fool.