Dell takes aim at costs and employees in Q4

Bets on the clouds


Dell used to love the conference call ritual which accompanies the release of a quarter's financial results. The vendor would get a chance to tout its amazing business model in front of Wall Street's finest analysts and brag about how much better it did than competitors. But we get the feeling that Dell's not so fond of the calls anymore.

The analyst crowd pounced on Dell once again, as the company tried to explain a fourth quarter that failed to exceed expectations. Sure Dell upped revenue by 10 per cent to $16bn, but its net income fell by 6 per cent to $679m. That dip reflected a Dell plagued by a bloated cost structure.

"We should not have let it get this high," Dell's CFO Don Carty said of the company's SG&A (Selling, General and Administrative) expense. "The company anticipated continued growth in revenue for a couple of years . . . (that) was simply not achieved. We were not as prudent . . . as we should have been."

Analysts pushed Dell time and again to specify places where it would cut costs. After all, HP's CEO Mark "The Butcher" Hurd makes fat trimming look easy. Why can't Dell do the same and be clear about it?

To such queries, Carty responded that Dell would at least take care of some heads.

Last May, Dell vowed to cut 10 per cent of its workforce or about 8,800 jobs.

So far, Dell has managed to whack about 3,200 people.

"While we have been reducing heads, we have been increasing heads on front line activity," Carty said. "(Still) we are going to hit that 8,800 target. We have a high degree of confidence that we have a clear line of sight in getting these costs out of the company."

Clear line of sight for axing "heads"? Surely he didn't.

Yes, he did.

Dell will trim in other areas too, tweaking its product design and even manufacturing operations. In the conference calls of yore, these two areas used to be Dell's biggest strength.

Returning to the fourth quarter figures, Dell reported a modest gain in PC sales hitting $4.9bn in revenue, which compares to $4.8bn in the same period last year. Laptop sales, however, surged to $4.8bn from $3.9bn. Server and networking sales came in flat at $1.6bn, as did storage sales at $600m. Services revenue edged up to $1.4m from $1.3m, while software and peripherals revenue rose to $2.7m from $2.3m.

Dell expressed some enthusiasm around its new retail strategy. The company has moved 1m systems through actual, physical stores. It also thinks that server sales will jump in the next couple of months. "It looks like our server growth will be quite a bit higher in the first quarter," said CEO Michael Dell. He added that Dell's Cloud Solutions Business where it caters to service providers via low-power and custom systems is doing well. "(We) have started to win some very substantial orders from some of the large mega-scale, hyper-scale data centers, search providers - those kinds of things."

And for those of you not convinced that Dell has its cost cutting plans under control, we leave you with another statement from Carty.

"We have a nice line of sight on the things that need to be done here," he said.

Anyone else feel like hunting? ®

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