RSSDell plans pay reductions, product feature removal, and over 8,800 job cuts
By Jacqueline Emigh | Published April 3, 2008, 4:15 PM
Dell, Inc. now plans to cut more jobs than the 8,800 headcount reduction predicted earlier, said CEO Michael Dell, speaking today at a meeting with financial analysts.
Dell's profitability plans also include pay reductions, removal of product features that are "not valued by customers," and "optimization" of the company's global manufacturing network, maintained Donald J. Carty, Dell's vice president and CFO, during the same meeting today.
Prior to this week's meeting with analysts, Dell last week announced plans for a staff reduction of 8,800 positions over the next three years, along with the shutdown of a desktop PC plant.
This week's jump in projected job cuts to more than 8,800 came as somewhat of a surprise. But more layoffs and other future cost-cutting measures by Dell were foretold in a conference call with analysts held more than a month ago to discuss the vendor's financial results for the fourth quarter of 2007 fiscal year.
Today, Lynn Tyson, Dell's VP of investor relations, reiterated the reasoning behind the cuts in a blog entry recounting the discussion at this week's meeting with Dell analysts.
"Dell is strengthening its competitive position and improving profitability by reducing total costs in three ways," Tyson wrote. "First, we will reduce operating expense, including headcount and compensation. Second, we will reduce product and procurement costs by designing for price segments and removing features that are not valued by our customers. Finally, we will reduce manufacturing and logistics costs by optimizing our global manufacturing network."
"We're re-engineering our entire cost structure to be the best in the industry," said Michael Dell, during the conference call in early March.
Carty told analysts during the call that Dell wasn't finished with layoffs yet, even after cutting its head count by 3,800 people over the previous year.
Although 2,100 jobs had been added over the year in "customer-facing" sales positions, 5,300 "non-front-line" jobs had gone away, according to Carty.
Carty also said that the company was "very pleased" with its recent growth rate, "particularly in notebooks and emerging markets and consumer business. But the CFO did not mention desktop PCs in that context.
In a blog posting just after Dell's announcement last week, Lynn Tyson, Dell's VP of investor relations, tried to explain the additional layoffs and the plant closing in Texas to Dell shareholders.
"Improving profitability means just that and this can be achieved by improving our cost position which is embedded in cost of goods sold (COGS) - like designing products that have the right features for our customers - things they want and value. Operating expenses (Opex) is also a part of profitability and we believe we can do a better job of managing these expenses - things like reducing headcount (net of acquisitions) and moving more of our people to front line positions - positions that actually touch the customer," Tyson wrote.
"And when you generate profits - cash flow follows. At least this is the case for Dell. On an annualized basis we typically generate operating free cash flow in excess of net income - so the more net income we generate - the more cash we generate. And at the end of the day it's cash that fuels shareholder value."
Also according to Tyson, Dell is closing its plant in Austin due to a shift in consumer preference from desktop PCs to notebooks.
"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 percent to 3.6 percent. And the desktop to notebook mix in the U.S. 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 percent and desktops by 10 percent," Tyson said.
Where does the idea come from that cutting everything will lead to long term success? Cutting customer service is what brought Dell down from the top spot. This is a short sighted solution that will bring on the company's demise. I can't help but see it as a pre-bankruptcy fire sale.
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i have a theory that they went down hill ever since they fired that "dude , get a dell" guy
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Dell is becoming Gateway.
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I work for school and so far not a single company was able to match the price for the quality we get from Dell. All computers comes with 3 yr NBD service included in price. In fact, for the past 10 years (my department at least) was buying nothing but Dell and everyone is happy.
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The price part I can agree with, but the quality I have to disagree with. Also have fun talking to clueless people in India when you have a problem with your new PC. Dell has really gone downhill which is really sad.
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The ought to also stop selling s***ty pc's
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Cutting compensation, cutting personal, optimizing logistics? Where in any of these statements have they promised to improve their products, cure support woes? I mean what, they found another village of slave labor to assemble their PCs cheaper than China?
Dell fell to the number two global PC spot behind HP/Compaq NOT because there weren’t profitable enough, but because their company’s brand quality fell drastically, and deservedly so.
How such mega multinational corporations like Microsoft and Dell, who’ve grown so successful, have fallen so far from the path still amazes me. Fact is, consumers are NOT sheep, not as dumb as they think we are. Especially Americans, we’ve had enough with cheap disposable Chinese crap from these companies, who not unlike Wal-Mart, depress wages, eliminate our jobs and benefits, all with one objective in mind – Wall Street. Who cares if your product reputation is crap, as long as its profitable? Mike, Bill, etc., how have these people become so inept, so ignorant, so apathetic so quickly? I’ll tell ya how. Give me a couple of billion dollars, and I wouldn’t care either. But at least I’d have the sense to step down.
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Dell use to be a pretty good company but started going to cr** when Michael Dell fell in love with India and move a lot of their operations there.
Just like Gateway until they were bought by Acer which is a Taiwan based company. What is it about this area, including the junk that passes for computer in Japan that makes them produce Junk. Maybe it's their terrible education system or that most of the population is poor and starving or maybe it is because between them and China they are cornering the market on Air pollution.
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I think you need to take a trip to China and India before you make such assumptions. Poor people are not making computers, they are farming. Computers have been coming from China for a long time...long before the quality went down the tube. The reason they are producing junk is because Americans wont pay for quality. Computers are disposable these days. And actually Gateway was a horrible company selling third rate crap, Acer on the other hand has satisfied me time and time again with their affordability AND dependability. Japanese electronics are nonexistent so you cant blame them...they are outsourcing just like us. Go check where a playstation is made. The reason China and India are polluting the world is because of the high demand we put on them to produce goods at low rates.
Its all on us. You cant blame anyone else.
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How can they reduce salary from the people they are already paying 10 dollars a month in India to answer the phone with a Texas/Indian accent? Maybe they should just go belly up the way they should and stop pretending that its made in the USA
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"Hey, our company is hurting just a bit."
"I know what to do, lets add *more* salesdroids and let loose the backend people who actually do stuff."
"That's a genius plan!"
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They are hurting, and need to reduce costs. If you sell more, then you can make more. Its clear that Dell hope to become more efficient more than anything. If they are listening to what customers want then that's the main thing, they need to improve the Dell experience to win back the previous customers now shopping elsewhere.
Not everyone likes to deal direct, that actually want to see what they buy. Most people will see offer's in the retail outlets and a high percentage of sales are impulse buys. When a nice shiny laptop appeals, then a chatty salesman pointing out discounts and low prices ... There is no Dell person to fight their corner.
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BWAAAAAAAHAHAHAHAHHAHAHAAHAHH!!!!!!!!!!!!!!!!!
Dell sucks and anyone who was roped into thier sales pitch is retarded.
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That comment isn't much smarter.
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I often fail to communicate the true limit of my wit. I just get lazy and call everyone cheap fat asses.
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