Dell cuts jobs, closes desktop plant as it looks to save $3B

The company is doing so as it struggles to keep its standing as a top PC OEM.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 4/1/2008

Seeking to save some $3 billion over the next three years, Dell Inc has said it will cut headcount by at least 8,800 and close its Austin desktop manufacturing facility.

The Round Rock, Texas-based company is doing so as it struggles to keep its standing as a top PC OEM. Currently the number two player in the market, Dell was overtaken by HP in 2006 shipment rankings and now has third place Acer nipping at its heels. Indeed, Dell has suffered numerous supply chain issues, has revamped its direct sales model to include retail, and in February 2007 welcomed back founder Michael Dell as its CEO in an attempt to recast the company’s course.

“We believe we have a $3 billion opportunity to drive both productivity and efficiency,” said Dell, who is also chairman of the company, in a press statement Monday. “We’ve analyzed the business and opportunity, so we know -- without question -- where our priorities should be. And as we’ve reignited growth in our business, we’re taking deliberate steps across the company to improve our competitive position.”

The company will take the actions will take during Fiscal 2009, started in February. As a part of a broader assessment of its global manufacturing and logistics network, the company said it will close its desktop manufacturing facility in Austin.

“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% to 3.6%. And the desktop to notebook mix in the US 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% and desktops by 10%,” Lynn A. Tyson, Dell’s investor relations VP, said in a company blog posted Monday afternoon.

In addition, the company also reaffirmed its previously announced plans to reduce global employee headcount by at least 8,800 and related operating expense. In the last nine months of the company’s fiscal 2008, it reduced headcount by 3,200, excluding acquisitions.

“We expect that these actions, along with the continuing rigor we’re applying to operating expense control throughout our operations, will result in an improved, world-class cost structure,” said Don Carty, Dell’s vice chairman and CFO, in the press statement.

The company also announced it is undertaking an assessment of ownership alternatives for its Dell Financial Services financing activities. The evaluation will primarily focus on the consumer and small/medium business revolving credit financing receivables and operations in the US, but may also include commercial leasing, the company said.

Dell made its announcements just days before its first analyst event in years. The company will provide a financial overview and updates on its global services, operations, and channel strategy on Wednesday, April 2, and Thursday, April 3. Both Dell and Carty are slated to present.