Dell Shuts Down One Austin Plant Among 8,800 Job Cuts

Published: April 2, 2008

by Timothy Prickett Morgan

PC and server maker Dell is, as most IT suppliers do, taking the easy way out. After a lengthy process of analyzing how it can trim costs to wring some profits out of its operations as its revenue growth moderates, Dell announced this week that it has decided to shut down one of its manufacturing facilities in its Austin, Texas, stomping grounds.

The plant closure comes as Dell is prepping its first meeting with Wall Street analysts in three years, which is being held today in the company's Round Rock headquarters. Dell is, of course, already making notebook computers overseas, and the closure of the Austin desktop PC factory is being pitched as a necessary transition as Dell's shipments have shifted from 70 percent of PCs being desktops in 2005 to a 50-50 split in 2007. When Michael Dell came back down out of the boardroom to take over the company in February 2007, he said Dell was examining every option to right the company. In June 2007, Dell announced that it would be giving 8,800 employees--about 10 percent of its global workforce--pink slips. Last week, the company said that it has laid off 3,200 employees in the past nine months, which means it has quite a way to go to reach its goal.

Dell has said that it wants to reduce expenses so that in 2010 its costs are $3 billion a year lower than they were in 2007. Laying off workers and shutting down the Austin PC plant is part of that plan. Dell has not said how many workers would be made redundant at the Austin facility, but that Austin American-Statesman puts the number at 900, and said further that desktop PC production would probably be shifted to a new Dell factory in Winston-Salem, North Carolina. (Dell is apparently keeping its Austin server factory open, by the way.) With desktop PCs being shipped by truck (laptops are shipped by air from overseas and then by truck through regular carriers), Dell will have to figure out how to keep shipping costs for desktops lower even as some PCs have to travel a lot further to get to customers.

The Austin area once had around 22,000 Dell employees, but with these cuts, which will come before the end of the fourth quarter, Dell will be down around 16,400 jobs, with more probably to come as Dell tries to eliminate 4,700 more jobs worldwide.

Other U.S. based factories operated by Dell are also facing possible cuts, as are overseas operations. But it is a lot more difficult, thanks to unions and councils and other worker organizations in Europe for Dell to make cuts there. Dell also mumbled something about "undertaking a strategic assessment" for Dell Financial Services. It is also hard to imagine that Dell is not looking to outsource its server manufacturing in some way to boost its profits. IBM has long-since stopped making all but the largest of its X64-based servers, and Unisys has partnered with NEC for server design and manufacturing. Sun Microsystems and Fujitsu-Siemens have partners to sell parts of each other's Sparc-based server lines, and Dell could subcontract out the design (probably not a good idea) and manufacturing of servers to reduce costs and increase profits. IBM has opened a server design and manufacturing facility in China, whose first products are due on the market any day now. It is very difficult to believe that Dell is not looking at the possibilities of moving as much manufacturing as possible overseas and to Asian countries particularly, despite high fuel costs, because of the relatively inexpensive trans-Pacific freight costs. On a per unit basis, it may take less money to ship a PC or a server from Taiwan or mainland China to the West coast than to truck it across North America over the highways.

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