Dell: We'll save $3 billion; Cut 8,800 positions

Dell on Monday gave a preview of its analyst meeting later this week and reaffirmed that it will aim to save $3 billion over the next three years and reduce headcount by 8,800. In fiscal 2009, Dell said it will focus on its consumer, enterprise, notebook, small and medium sized business and emerging market businesses.

Dell on Monday gave a preview of its analyst meeting later this week and reaffirmed that it will aim to save $3 billion over the next three years and reduce headcount by 8,800.

In fiscal 2009, Dell said it will focus on its consumer, enterprise, notebook, small and medium sized business and emerging market businesses. In a statement, Dell, which largely reiterated prior forecasts, will also close its desktop manufacturing plant in Austin, Texas.

In a blog post, Lynn Tyson, VP of investor relations at Dell, said:

Over the last three years, driven by the massive shift in customer preference for notebooks - especially among consumers, industry forecasts for the rate of growth of desktops have declined from 10.8 percent to 3.6 percent. And the desktop to notebook mix in the U.S. has declined from a 70/30 split in 2005 in favor of desktops to a 50/50 split today. Our fiscal fourth quarter of last year reflects this change as we grew notebook units year over year by 37 percent and desktops by 10 percent.

Another interesting thread: Dell plans on "undertaking a strategic assessment" of its Dell Financial Services (DFS) unit, which provides credit to consumers and small businesses. The review may also include commercial leasing. Amid the credit crunch, many companies that have dabbled in offering credit to consumers are evaluating whether they want the risk on their books.

Dell disputed that its review has anything to do with the credit crunch. However, it's a little hard not to connect those two events. Tyson said:

First, our assessment of our DFS business is unrelated to what is going on right now in the credit markets - we completed the acquisition and so the natural next step is to pursue our strategy, simple as that. Many companies - GE and Target - to cite recent examples - often assess the ownership structure of their financing companies. In our case we are primarily evaluating three key things: (1) can DFS provide even better and most robust product offerings to our customers, (2) can we accelerate the investments we are making in DFS and, (3) are there more efficient ways to fund DFS. Our assessment may result in no change, or a sale to or partnership with a fully dedicated financing company.

Second, relative to our consumer financing receivables - less than 20 percent of our net customer receivables - or $1.6 billion - were to subprime customers. This percentage is similar to what it was in our fiscal third quarter. Based on our assessment of these customers financing receivables and the associated risks, we believe we are adequately reserved.

Separately, Dell filed its annual report. Among the notable excerpts:

  • We expect that the competitive pricing environment will continue to be challenging. However, we believe that the strength of our evolving business strategy and indirect distribution channels, as well as our strong liquidity position, makes us well positioned to continue profitable growth over the long term in any business climate. For consumers, we recognize the increasing importance of product “ID”, which is the appearance, ease of use, and ability to interact with peripheral products like cameras and MP3 players, and we are focusing more resources to improve in this area.
  • As of February 1, 2008, we held a worldwide portfolio of 1,954 patents and had an additional 2,196 patent applications pending.
  • We have developed and started implementing a plan to combine the consumer business of both EMEA and APJ with the U.S. Consumer business and re-align our management and financial reporting structure. We will begin reporting worldwide Consumer once we complete the global consolidation of this business, which we expect to be the first quarter of Fiscal 2009. The changes have had no impact on our operating segment structure to date. This segment will include worldwide sales to individual consumers and select retailers.