Dell to cut 10% of its workforce
Computer maker Dell Inc. on Thursday reported a slight decline in quarterly profit and said it would cut 10% of its workforce, or about 8,800 jobs, to better compete.
But the Round Rock, Texas-based computer maker’s fiscal first-quarter results exceeded Wall Street’s expectations, and analysts said they were starting to see signs that recently returned founder Michael Dell was turning the company around after a year of its losing market share in personal computers to Hewlett-Packard Co.
Dell shares gained nearly 3% in regular trading, to $26.91, then 6% more, to $28.45, after hours. If the stock opens at that level today, it will set a 52-week high.
“Things are much healthier than what we thought they would be,” said Brent Bracelin, vice president and senior research analyst at Pacific Crest Securities, an investment bank based in Portland, Ore.
Dell reported net income of $759 million, or 34 cents a share, compared with $762 million, or 33 cents, in the same period last year. Sales rose nearly 3% to $14.6 billion.
Analysts had expected Dell to earn 26 cents a share on sales of $13.95 billion, according to a survey by Thomson Financial.
Dell said decreases in the price of components had helped it lower expenses, and a better range of products and services that commanded higher selling prices brought in more revenue.
Dell’s server sales rose 19% quarter over quarter, and storage sales increased 13%. Desktop computer revenue fell 6%.
Over the next 12 months, Dell plans to shed 10% of its workforce, affecting its 82,000 full-time employees and 5,300 temporary ones. The company declined to say where it would cut jobs.
“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. The computer maker did not hold a conference call to discuss its results with analysts.
Dell cautioned that the results were preliminary pending an internal investigation of its accounting practices. The Securities and Exchange Commission also is investigating Dell. The company has revealed few details about the nature of the accounting concern. It said Thursday that it hadn’t decided whether it would have to restate earlier earnings reports.
Dell postponed its annual shareholder meeting, which had been scheduled for July 20.
The company said it incurred $46 million in costs related to the investigation during the quarter, which cut into earnings per share by about 2 cents.
Analysts said the quarter showed evidence of progress at Dell, but they expressed concern about the probe and some financial metrics, such as the slight drop in cash reserves.
“The results were surprisingly strong compared to Dell’s peers,” said American Technology Research analyst Shaw Wu. “It’s not clear it’s sustainable.”
Dell has been on a losing streak for the last year. Last fall Palo Alto-based Hewlett-Packard overtook Dell as the global leader in PC sales, and it has continued to gobble up market share.
In addition to Michael Dell’s return as chief executive in January, the company has recruited executives from Motorola Inc., Oracle Corp., Electronic Data Systems Corp. and Solectron Corp. Dell board member Donald Carty, former CEO of American Airlines Inc., became Dell’s chief financial officer.
Dell pioneered the direct-sales model of making computers only when people order them, but it has recently shown a willingness to put more of its products on store shelves. This month the company will begin selling two desktop computers at Wal-Mart stores.
