Dell seeks to cut costs by $2bn

Thu, Jun 14, 2012, 01:00

DELL, THE world’s third-largest maker of personal computers, is seeking to cut costs by more than $2 billion over the next three years.

The company, which employs 2,300 people in its operations in Dublin and Limerick, said costs could be trimmed from the supply chain and sales support.

It is understood that staff cuts are not forming part of the package of measures to realise the savings, with product configuration simplification and manufacturing efficiencies expected to be targeted.

Dell closed its manufacturing operations in Raheen, Limerick, in 2009 and moved its assembly line to Lodz in Poland.

Dell’s sales growth has slowed, with revenue rising just 1 per cent in fiscal 2012. The company lost share in the global PC market in the first three months of the year, and it now trails HP and Lenovo, according to market researcher Gartner.

But while PC sales growth is slowing, the company said the unit is driving sales of software, accessories and services.

“As you think about our industry it’s constantly in transition,” chief executive Michael Dell said at a meeting with analysts in Austin, Texas.

Dell has been acquiring makers of data storage, networking equipment and business software to diversify beyond PCs and will continue to use deals to boost revenue.

“We have a modest software business and that’s an area where we can grow rapidly,” Mr Dell said, adding that he plans to work with partners rather than owning products in every category. “We’ve had some nice acquisitions which are off to a good start.”

Dell is expanding in enterprise technology to offer corporations a broader line-up of products and services to run technology operations.

Dell initiated an 8-cent a share quarterly dividend this week amid an uneven turnaround effort. The payout will begin in the fiscal third quarter, which ends in October.

The company ended the fiscal first quarter with $17.2 billion in cash and investments, chief financial Officer Brian Gladden said on a conference call last month. Dell follows other large technology companies in starting or increasing dividends after amassing cash previously earmarked for research, development and acquisitions.

Apple, the world’s largest company by market value, in March said it would pay its first dividend in 17 years, heeding investors who urged it to return part of its cash hoard.

Microsoft, the biggest software maker, in 2003 acceded to shareholders’ demands for a cash return by paying its first dividend. It raised the payout by 25 per cent last year.

Through the dividend and stock buybacks, Dell said it plans to return 20 per cent to 35 per cent of free cash flow to investors, up from a prior projection of 10 per cent to 30 per cent.

Over the past four quarters, Dell has generated $4.9 billion in cash flow from operations, the company said. (Additional reporting: Bloomberg)