- Dell Computer yesterday disclosed that its workforce is being reduced by 4% through a layoff of 1700 employees in the face of lowered revenue growth forecasts at the PC maker.
The company says the cuts will mostly affect administrative, marketing and product support workers in its central Texas operations.
Dell already warned last month that profits in the quarter would likely be about 33% less than expected. When the warning was issued, CEO Michael Dell said the company would continue to aggressively manage its internal cost structure as a result of the fourth-quarter showing.
Despite the layoffs, a Dell spokesman says, users who buy PCs and servers from the company "should see no blips in service." The jobs being eliminated are "positions that do not touch the customers," he adds.
The 1700 employees who are being let go will get two months worth of severance pay and continued benefits for the next 60 days, according to the spokesman. This is the first time Dell has laid off a significant number of workers, he says, adding: "It's been a hard day."
But analysts say the layoffs had to happen.
PC prices continue to spiral downward due to soft demand from users and competition from wireless and handheld devices. Coupled with the rapid slowdown in the US economy, that means Dell and other PC makers have to be able to compete at lower price points, says Martin Reynolds, an analyst at Gartner Group in Stamford, Connecticut.
"All the PC companies, including Dell, are too large for the level of business happening now," says Roger Kay, an analyst at market-research firm International Data Corporation in Framingham, Massachusetts. "There's overcapacity in the industry."
The Dell spokesman declines to specify the amount of money that Dell expects to save via the layoffs.
Many of the jobs being cut by Dell became redundant because of a recent internal reorganisation, the company says. But the layoffs were also attributed to reduced expectations for PC demand in general and Dell's revenue growth in particular. The cutbacks are being made at all levels of the company, Dell adds.
The layoffs follow another cost-cutting move earlier this month in which Dell shut down a business-to-business exchange that had been launched with great fanfare last October. The company pulled the plug on the Dell Marketplace venture after only three suppliers signed up to offer goods through the B2B exchange.
Dell is just one of many PC vendors being affected by a softening of demand that started late last year. For example, arch-rival Compaq Computer last month reported financial results in line with a reduced-expectations warning it issued in December. And Gateway overhauled its senior management and laid off 10% of its workers after reporting a $US94.3 million fourth-quarter loss.