Dell Inc., which grew rapidly during the economic downturn as competitors stumbled, is finding the going rough as it continues to shift its focus from lower-end PCs to higher-margin hardware and services.
The Round Rock, Texas, company last week issued a warning that its third-quarter revenues would come in lower than officials initially predicted and that layoffs and problems in some OptiPlex desktop PCs with a faulty component from a third-party vendor will result in a $450 million charge. Dell is scheduled to release its third-quarter earnings this week.
Dell officials pointed to their U.S. consumer business and U.K. operations as key culprits for the lower numbers. The company said revenues would come in at approximately $13.9 billion, below the estimate of $14.1 billion to $14.5 billion initially offered by Dell.
The layoffs and the program to replace faulty motherboards in OptiPlex GX270 and GX280 business desktop PCs are key components of the $450 million charge the company will take in the quarter. The replacement of the motherboards will account for the bulk of the charge, or about $300 million, Dell spokesperson Jess Blackburn said.
The replacements are necessary as some capacitors on some motherboards shipped in the GX270 and GX280 systems failed. The failure, which causes the PCs not to boot, occurs when capacitors bulge and fail.
"Were repairing the products in the field as problems arise," Blackburn said. "Theres no safety issue, no data loss for our customers."
The layoffs were the result of a restructuring to consolidate functions to improve operational efficiency. "We took several actions, which were designed to enhance operating efficiency, improve our performance and also reduce costs," Blackburn said. "Those steps resulted in some job eliminations." Blackburn declined to say how many employees lost their jobs, but he said it was "a small percentage" of Dells worldwide employee base, which is about 61,000 people.
Roger Kay, an analyst with Endpoint Technology Associates Inc., in Wayland, Mass., questioned whether there are larger issues at play at Dell that contributed to the companys recent uncharacteristic financial results. Kay said that while Dell continues to make a lot of money, its unreasonable to believe that it can continue to grow at such a high rate and that the emerging overseas markets, such as China and India, may be less friendly to the companys direct-sales model.
John G. Spooner is a senior writer with eWEEK.com.