Dell Inc. will lay off 10 per cent of its 88,100 workers in a continuing effort to improve profits, while it completes an investigation of accounting fraud, it said Thursday.
Dell will make the layoffs over the next 12 months, including workers throughout its geographic regions, customer segments and job functions, the company said in a statement. The move is part of a corporate cost review spanning product development and procurement, service and support delivery.
While layoffs are difficult, “we know these actions are critical to our ability to deliver unprecedented value to our customers now and in the future,” company CEO Michael Dell said in a written statement.
The company also announced it made $759 million in profit for the first quarter of its 2008 fiscal year, down slightly from the $762 million it earned for the same quarter last year.
Dell reported revenue of $14.6 billion and earnings of $0.34 per share, both well above Wall Street expectations of $13.95 billion in revenue and $0.26 earnings per share, according to analysts polled by Thomson Financial.
Despite its success in beating the financial forecast, Dell also said it had spent $46 million in the last quarter on expenses for the investigation into accounting and financial reporting. Dell began an internal study of its books because of questions raised in 2006 by the U.S. Securities and Exchange Commission (SEC). Dell blamed that situation for its decision to file only preliminary results Thursday, marking the fourth consecutive statement that the company has not filed an audited, official earnings account.
Those missing statements have also forced Dell to fight to keep its stock listed on the Nasdaq exchange, which requires all public companies to file audited Form 10-K papers in order to be publicly traded. Dell has already won several extensions of a deadline to supply those numbers, and on May 4, it asked for even more time to meet the conditions.The layoffs are the latest in a series of swift changes Michael Dell has made since he returned to day-to-day management of the company in January, replacing former CEO Kevin Rollins. Dell faced the immediate challenges of the SEC investigation, a lawsuit by angry investors, slumping profits and a slide in market share that led Dell to fall behind Hewlett-Packard Co. into second place among the world’s largest PC vendors.Michael Dell responded by replacing much of the senior management team with executives from other companies, eliminating salary bonuses and agreeing to customer demand for notebooks and desktops with the Linux operating system instead of Microsoft Corp.’s Windows. On May 24, he announced a plan to start selling Dell PCs in Wal-Mart retail stores, breaking with the famous direct sales model that once allowed the company to grow so fast.
Despite those moves, the layoffs show that Dell is finding it tougher to rein in the troubled company than he anticipated, one industry expert said.
“This is not the same company he left a few years ago. It’s got bigger personnel, more vendors, more suppliers, and more dependence on China than when he left,” said Rick Doherty, an analyst with The Envisioneering Group. “He’s not just getting back in the driver’s seat and winning the Indy 500, but realizing that market conditions have changed.”
The strongest example of that changing market is the recent ascendance of HP, measured not only by U.S. retail sales but also through the international success of its latest marketing campaign around the slogan, “the computer is personal again,” Doherty said.
Not every change has hurt Dell’s bottom line, however. Its financial performance for the first quarter got a strong boost from the declining cost of PC components, the company said. Some of the largest price changes have hit DRAM chips and microprocessors, which are selling so cheaply that Gartner Inc. on Thursday cut its 2007 revenue growth forecast for the global semiconductor market from 6.4 per cent to just 2.5 per cent.
Some of Michael Dell’s changes may have begun to pay off. The company cited its improved mix of products and services for helping to drive up average selling prices (ASPs) and thus boost revenues. The company recorded a 19 per cent increase in server revenue compared with the first quarter last year, reaching $1.6 billion. Storage revenue also jumped, rising 13 per cent to $500 million. Dell’s PC sales were less successful, with notebook sales rising 7 per cent to $4 billion and desktop sales dropping 6 per cent to $4.9 billion.
Dell also recorded $1.3 billion in revenue from services and $2.3 billion from peripherals.
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