Dell Looks to Cut $2 Billion in Expenses Over Three Years
Dell executives are looking to pare $2 billion in expenses over the next three years as the company continues to expand its enterprise business while trying to shore up its core PC business.
Meeting with analysts June 13, CEO Michael Dell and CFO Brian Gladden spoke about the companys continuing transformation into a complete IT solutions provider, a higher-margin business that offers potential for solid growth and protects Dell from the slowing sales of consumer PCs, which are under pressure from the rise of mobile devices like smartphones and tablets.
Michael Dell said that as the tech world changes, so must companies like his.
As you think about our industry, its constantly in transition, he told the analysts at the meeting in Austin, Texas, which also was Webcast online.
According to Dell officials, much of the $2 billion will come from the supply chain and sales group, some of that prompted by changes in the companys business focus. For example, as much as $600 million will come through simplifying product lines and consolidating manufacturing operations, while another $800 million will come via consolidating sales and marketing, according to the company.
Dell, the worlds third-largest PC maker, also is looking to consolidate its own IT platform, which will result in another $200 million in savings. Officials did not say whether job cuts would be involved.
Throughout the meeting, Dell executives continued to champion the companys enterprise IT strategy. Much of that has been fueled by a steady stream of acquisitions as company officials have looked to build up Dells capabilities in such areas as enterprise servers, storage, networking and software. Dell has bought eight companies over the past 12 months and created a software group.
Dells first-quarter numbersa 4 percent revenue drop and 33 percent decrease in profitsfell short of expectations, but company executives at the time reiterated their belief in the shift toward enterprise solutions. In addition, Dell officials have noted that half the companys gross margins and 30 percent of revenues in the first quarter came from enterprise solutions and services, and the company expects that its enterprise solutions, software and service business will grow 10 percent a year through 2016.
Dells analyst meeting came as the company was winding down its Dell Storage Forum in Boston, where the company unveiled new enterprise-focused offerings, including its Converged Blade Data Center and a host of storage and networking technologies.
In an interview with eWEEK at the Boston event, Brad Anderson, president of Dells Enterprise Solutions Group, talked about the companys transformation.
Were selling full solutions here, Anderson said, noting that its a departure from Dells legacy of being a PC and server maker. Thats kind of different. ¦ Were getting away from building boxes to building solutions.
In addition, while the company before was known for its extremely efficient supply chain and manufacturing process, Dell also is becoming a more innovative company, he said. While the vendor is aggressively buying technology companies to build out its offeringsthink Compellent, EqualLogic, Wyse Technology, SonicWall and Force10 Networks, among othersDell also has grown its engineering teams by 50 percent.
Gladden, the chief financial officer, noted during the analyst meeting that acquisitions will still be an important way for Dell to expand its enterprise capabilities in such areas as storage, networking and software. Michael Dell agreed.
"We have a modest software business, and that's an area where we can grow rapidly," he told the analysts, adding that Dell has "some nice acquisitions, which are off to a good start."
During the analyst meeting, Dell executives said that while the company was becoming more of an IT solutions vendor and not simply a PC maker, the PC business was still important, not only for the money it brings in but also as a way into businesses and emerging markets. If Dell can sell PCs into those places, then the company can begin trying to up-sell higher margin solutions and services.