Struggling Dell Slashes 10 Percent of Workforce

Published: June 6, 2007

by Timothy Prickett Morgan

Server and PC maker Dell last week announced preliminary financial results for its first quarter of fiscal 2008 ended May 4, and did so to give Wall Street an early peek at the numbers and to let investors and competitors know that Dell was going to cut 10 percent of its workforce, or about 8,800 employees, from its payrolls over the next 12 months to get lean and mean.

The layoffs were expected, of course, since Michael Dell, who has retaken the role of chief executive officer, said that he would do a top-to-bottom review of Dell's business units and business model. That review has caused Dell to adopt Linux on its PCs and ink a deal with Wal-Mart to sell PCs, among other things.

"While reductions in headcount 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," Dell said in a statement accompanying the company's preliminary financial results for the first fiscal quarter.

The company added that the layoffs will take place across geographic regions, customer segments, and job functions, and will be limited to the local labor laws as well as business conditions. What that usually means for a global IT player is that job cuts in North America come first, followed by cuts in Europe where labor laws are more stringent and it takes longer to remove people from the payroll.

In the first quarter, Dell had sales of $14.6 billion, up 3 percent. Net income dropped to $759 million, down a fraction of a percent from the year-ago quarter. Dell's desktop PC sales fell by 4 percent to $4.9 billion in the quarter, with sales of laptops and other mobile products up 8 percent to $4 billion. Servers and networking gear was the big savior for the quarter, with $1.6 billion in sales, up 23 percent, and storage sales were flat at $500 million. Dell's services business actually shrunk a bit, to $1.3 billion, and its software and peripherals business grew a bit to $2.3 billion.

These numbers are, of course, subject to some wiggle. But given all the hot water Dell has been in lately, it seems unlikely they will change very much when the official results for the quarter are announced. This will happen after Dell's audit committee finishes a review of Dell's accounting practices, which has been underway since last year after the Securities and Exchange Commission started poking around.

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