Dell Looks to Cut Costs, Expand Further into Netbooks

As Dell reports a revenue dip of 16 percent in the fourth quarter, to $13.4 billion, the desktop and notebook maker is looking to cut costs and expand further into low-cost laptops and mininotebooks, aka netbooks. CEO Michael Dell says the cloud and enterprise solutions will also play a role in reviving Dell's business.

Faced with the recession and dismal fourth-quarter earnings, in which revenue dipped 16 percent to $13.4 billion, Dell is continuing to cut costs and explore expansion into new areas of revenue such as low-cost laptops, also known as "netbooks."

Dell officials are engaging in a strategy of cost-cutting and building new revenue streams to get the company back on a growth track. 

In addition, Dell has been concentrating on slashing its operating expenses, which in the fourth quarter were down $365 million year over year. The company also raised its cost-reduction goal from $3 billion to $4 billion by fiscal 2011, potentially opening the door to layoffs.

The company has declined to offer specific comments about any headcount reductions, but said it is examining every cost area for cuts.

"We continue to look across our entire structure," Dell Chief Financial Officer Brian Gladden said during an earnings call, for opportunities to "streamline and improve" the company's competitiveness.

Nonetheless, Gladden took pains during the earnings call to assure listeners that the company continued to possess a competitive mindset: The possibility of acquiring smaller companies remains on the table, thanks to continued cash-flow performance that leaves Dell with around $9 billion on hand. 

"We'll be opportunistic; we have the cash to do that," Gladden said.

Gladden added that low-cost laptops and mininotebooks, or netbooks, will be "an area we'll continue to focus on." Netbooks have seen increasing sales as cash-strapped consumers and businesses turn to less expensive computing solutions, perhaps taking market share from higher-end laptops and PCs. 

Rumor has it that Dell will also expand into the smartphone arena.

In a separate call, CEO Michael Dell touched on several key areas of potential future competitiveness for the company, including "the cloud and the Internet, leveraging Dell.com" and "pushing deeper into enterprise solutions" with a focus on lowering IT costs for organizations.

Some analysts, however, are convinced that Dell's exposure to the overall PC market will continue to be a drag, even as it attempts to reach into new areas.

"We are not dismissing our view of Dell as a turn-around story, but believe it will take a few quarters for Dell to see the returns from its strategic overhaul and investments in the indirect channel," Dinesh Moorjani, an analyst with Broadpoint AmTech, said in an analyst note.