Dell Aims to Cut $4 Billion in Expenses by 2011

Dell’s (DELL) revenue fell 16 percent in the fourth quarter, but the company was able to top Wall Street expectations courtesy of cost cutting. Dell indicated that it will now aim to save $4 billion in expenses by 2011, up from an initial $3 billion target.

Dell reported fourth quarter earnings of $351 million, or 18 cents a share, on revenue of $13.4 billion, down 16 percent from a year ago. That earnings figure (statement) included a pretax charge of $277 million, or 11 cents a share, related to restructuring. Excluding that charge, Dell would have had earnings of 29 cents a share. Wall Street was expecting earnings of 28 cents a share. Dell reported earnings of $2.47 billion, or $1.25 a share, on revenue of $61.1 billion for fiscal 2009.

Simply put the fourth quarter was difficult for Dell and the company isn’t expecting much improvement. Here’s the outlook (emphasis added):

Dell believes that global IT end-user demand will continue to be uncertain and challenging. The company will maintain its focus on areas that it can control, especially those that benefit customers, including product quality, services and costs. Dell’s new global organization aligns the company even more closely with different types of customers, to best understand and efficiently act on their needs. Dell will continue to manage its mix of products and services to optimize liquidity, profitability and growth. The company expects to absorb organizational effectiveness expenses in the first quarter of fiscal 2010 at a similar level as in Q4, as Dell further streamlines its business to improve competitiveness.

That translates into the following:

Dell CFO Brian Gladden noted that the company had a plan to cut $3 billion in expenses by 2011 and it now plans on cutting $4 billion. On a call with analysts, the company was asked for details about the additional $1 billion in cuts, specifically whether it involved a signification headcount reduction. Gladden wouldn’t comment about “specific headcount impact” but went on to say that the reduction would involve “a broad set of initiatives that covers every segment.”

Add it up and Dell will continue to cut costs amid weak IT spending. HP has the same playbook.

Here’s Dell’s fiscal 2010 plan:

Dell CEO Michael Dell also fielded questions on the call about Windows 7 and the growth of netbooks. He said the company is excited about Windows 7 and, recognizing that customers will defer their purchases until its debut, said the company is talking to customers about being ready for Windows 7. As for netbooks, Dell said he still sees them as having a relatively low share of the consumer market and that there hasn’t been much demand from business customers, which still prefer larger-screen notebooks.

By the numbers:

• Mobility revenue fell 17 percent in the fourth quarter from a year ago to $4 billion. Desktop PC fourth revenue was $3.53 billion, down 27 percent. Software and peripheral revenue fell 6 percent $2.48 billion. Servers and networking revenue fell 16 percent to $1.37 billion. Services revenue in the fourth quarter was $1.35 billion, down 3 percent. Storage revenue in the fourth quarter was $692 million, up 7 percent from year ago.
• Dell’s consumer business saw fourth quarter revenue fall 7 percent to $3 billion. For the fiscal year, consumer revenue was up 11 percent to $11.5 billion.
• Dell’s commercial business tanked in the fourth quarter with revenue falling 18 percent to $10.5 billion. For the year commercial revenue was down 2 percent to $49.6 billion. In the fourth quarter, notebooks, desktops and servers units were down 22 percent, 21 percent and 18 percent, respectively.
• Server, storage and services account for 50 percent of Dell’s gross profit.
• Dell’s headcount at the end of the quarter was down 11 percent from a year ago to 78,900.

Comments

[Pj568:]

Also a critical issue is their need to fix the balance sheet. Unless they decrease leverage from 6x and build working capital, they'll be less able to compete for future growth. Significant buybacks has put their leverage factor only slightly below GE's.

Feb 27 07:34 AM

[ppgreat:]

Omigod. How many MBA buzzwords and charts can a company fit into one presentation in an attempt to cover up the fact that they're a house of cards. The New Gateway.

Feb 27 05:55 PM

[Harryd:]

Dell should shut the company down and give the money back to the shareholders. To only keep $351M in profits out of $13.41B in revenue is nothing short of breathtaking. One could rightly ask if they'll survive the recession. For comparison, on 01/21, "tiny" Apple announced its Q1 results that ended 12/27/08 of $10.17 billion in revenue and $1.61 billion in net profit. Near five times the profits in favor of Apple with 3 billion less in revenus. Being number 1 in the market don't matters if you can't make any money... Still... In a note to investors late Thursday, Thomas Weisel analyst Doug Reid called the results "solid" and said he is "incrementally more positive on Dell shares based on clear evidence of broad-based cost discipline.". Discipline, yes Sir, Sir!, that is what we need; we'll talk about profit later. And: (...) Separately, Needham Co. analyst Richard Kugele (...) maintained his "Buy" rating ... ... "Buy" oh, please buy rating ... Remember thoses bull ... names...

Feb 28 02:42 AM

[lrd:]

Dell & Microsoft are the new IBMs of the PC world- dinosaurs seeking shelter from their mediocre products.

Feb 28 02:02 PM

[lrd:]

Opps- I forgot to include the Republican Party. Talks about people still living in the dark ages!

Feb 28 02:05 PM