Dell Plans to Lay Off 8,000 Workers; Impact in N.C. not Known
Posted June 1, 2007
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.
Dell's largest manufacturing facility is located in Winston-Salem.
The effect of any layoffs at the so-called WS1 plant is not known at this point, the Winston-Salem Journal reported Friday morning.
Dell has 1,100 people working at WS1, company spokesperson David Franks told the newspaper.
"Frink said he could not comment on whether the job cuts would affect the local plant, but he said that the reduction would impact permanent and temporary employees," the Journal said.
Dell must have 1,500 employees at its facility by 2010 in order to qualify for state and local tax incentives of more than $300 million. The incentives were part of a package to lure the plant to Winston-Salem. It opened in 2005.
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.
"I don't think the Dell model is broken, it just needs some tweaking," Durell said. "Dell is still Dell and that's not going to change."
Dell issued the financial results as a news release and didn't offer any follow-up conference calls with analysts or reporters. The company didn't provide year-ago figures in its report either.
The company's earnings statements from the second, third and fourth quarters also remain preliminary and have yet to be filed with the Securities and Exchange Commission because of an ongoing federal accounting probe that found numerous errors, evidence of misconduct and financial control deficiencies.
Thursday's report included a charge of $46 million, or 2 cents per share, for costs related to the investigation. Dell didn't offer specific guidance but said the second quarter could be tougher due to a seasonal slowdown for the company and continued expenses related to the investigations.
Dell also hasn't filed its annual report for the fiscal year ended February 2.
Thomas W. Luce III, chairman of the Dell's internal audit committee, conceded that the investigation was taking longer than expected.
"Although this process has taken us longer than we would have liked," Luce explained, "it is important to commit the time and resources required to ensure a thorough and comprehensive review and resolution of all identified issues and the implementation of appropriate remedial measures."
Without offering a timetable, Dell spokesman David Frink said the probe was in its final phases.
Durell said he was convinced that if Dell had some major financial restatements to make, they would have been announced by now.
"Nobody these days wants to go ahead with any of these restatements without going through everything with a very fine-toothed comb," he said.