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In its ongoing effort to cut costs, Dell plans to close its desktop manufacturing facility in Austin, Texas, as part of a plan that will reduce the company’s costs by $3 billion during the next three years.
The PC vendor announced March 31 that it would begin cutting costs and improving its efficiency in the second half of 2009 fiscal year. Besides announcing the closing of the Austin plant, Dell reaffirmed that it plans to eliminate nearly 9,000 positions as part of the cost cutting.
When the company announced its fourth-quarter results in February, Chief Financial Officer Don Carty said Dell has already eliminated a total of 3,200 positions and would eventually reduce its head count by 8,800 employees, excluding those workers it inherited during some of its recent acquisitions.
The cost cuts come as Dell is trying to return to its past profits. When it announced its fourth-quarter results in February, Dell’s net income was $679 million, or 33 cents per share, which is a 6.5 percent drop from the $726 million in net income the company posted at the same time a year ago. For the quarter, Dell’s revenue increased from $14.5 billion last year to $16 billion this year.
CEO Michael Dell said in a statement that he plans to focus on five major growth areas during the next three years. These include the global consumer market, enterprise businesses, notebooks, small and midsize businesses and the emerging market. Earlier in March, Dell announced that his namesake company would buy about $18 billion of hardware from China and that it has poured money into opening facilities in Poland.
“We’ve analyzed the business and opportunity, so we know-without question-where our priorities should be. And as we’ve reignited growth in our business, we’re taking deliberate steps across the company to improve our competitive position,” Dell said in a statement.
All these moves come as the company continues to try to reinvent itself within a PC market that it has helped define since the 1990s. In the past two years, it has lost significant ground to Hewlett-Packard, which is now the world’s biggest supplier of PCs. Dell has retained its edge in the U.S. market, but HP has closed the gap.
Dell also faces new competition from the likes of Acer, which acquired Gateway in 2007, and sells a range of low-cost notebooks for consumers and SMBs. To try to counter this, Dell has moved into PC retailing and has begun rethinking the direct sales model that it has relied on for profitability.
Roger Kay, an analyst with Endpoint Technologies Associates, said Dell is attempting to reinvent its business much the same way HP did after it bought Compaq. This required an outsourcing of most its manufacturing, a reduction in head count and a refocusing of its core businesses.
“A lot of these improvements look a lot like what HP has done,” Kay said. “HP has consolidated a lot of businesses and it outsourced a lot of its manufacturing to overseas.”
In addition to its previous moves, HP is planning to save $1 billion in the next year by reducing the number of its data centers through consolidation.
Kay also said the cost savings is chance for Dell to rethink how it uses its global supply chain. Although the company built a reputation for managing its supply chain to squeeze the most savings out of it, Kay said he believes those days are long gone and Dell needs refocus on the supply chain. Investing in overseas facilities is one way to better control the supply chain costs, he said.
Michael Dell is likely to address some of these issues at a meeting with financial analyst at the company’s headquarters April 2 and 3.