DELL PLANS FURTHER JOB CUTS

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Dell plans further job cuts
Dell yesterday said it was seeking to strip out more than $3 billion of costs over the next four years in a move that will see the computer giant cut 8,800 jobs.
The company is seeking to boost its profit margins after it was overtaken by its larger competitor Hewlett-Packard in 2007.Speaking at a presentation to analysts yesterday, Michael Dell, the founder of the firm, said that the cost-cutting measure would also include reform of its logistics network and outsourcing more of its manufacturing operations.A spokesman for the company sought to downplay fears that the programme signalled evidence that the group was experiencing a sharp slowdown in new business as the US faces a recession. He said that while the company had already indicated that it was “seeing some hesitancy among companies and how they are choosing to spend their IT dollars”, Dell had first discussed cost-cutting measures as early as last May

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Dell is struggling to compete with Hewlett-Packard which is able to take more risks in the market and subsidise more of its products because of its very profitable printers business.One industry insider, who declined to be named, said: “HP can afford to use the profits from the printers operations to subsidise the rest of the company. It allows them to take more risk with designing innovative products.”He added: “The real problem is that product prices just keep going down. You can buy a Dell laptop now for less than $500. It is a brutal business and unless you are the market leader you really don’t have any competitive advantage. The likes of HP and Dell only really make money on the first three months, maybe six, of a new product. It’s a permanent treadmill and Dell has lost quite a bit of momentum.”The spokesman for Dell said that the company had already made a number of redundancies with 5,500 jobs cut out of the 8,000 reduction. He refused to be drawn on what portion of those job cuts would be made in the US, insisting that the reduction programme was “global”.Dell has manufacturing facilities in Texas, North Carolina, Tennessee, and in Malaysia, Penang, China and Poland. It has already said that it is closing a manufacturing operation in Austin, Texas which will result in the loss of about 900 jobs.

Mike Cannon, Dell’s president for global operations, said that the company historically relied too heavily on its own businesses to design and make computers. Competitors such as HP, which unseated Dell as the largest personal-computer maker two years ago, typically use a more diversified supply chain.He said: “Instead of having one supply chain approach for Dell, we are going to have multiple supply chains.”Dell rivals such as Hewlett-Packard, IBM and Sun Microsystems have long-standing relationships with outside manufacturing partners, which often offer customers bundles of computer hardware, software and services. Dell, however, has been a relative outsider.Shares in Dell fell by as much as 2 per cent in early trading in New York, before paring the fall to be almost unchanged at $19.83. The stock has tumbled from just over $30 at the end of last year.Unemployment is rising at an alarming rate in the US with just under 5 per cent of the workforce out of a job. It is expected , by some Wall Street analysts to rise to 6 per cent – a rate perceived by many as a sign of an automatic recession – by the end of the year.

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April 21, 2008 at 12:55 PM