UPDATE 1-Dell stock down after cost-cut report
FRIDAY, FEBRUARY 9, 2001 2:47:00 PM EST
(adds Dell comment on cost cuts, updates stock price)
SAN FRANCISCO, Feb 9 (Reuters) - Dell Computer Corp. DELL shares fell more than 9 percent on Friday following a report that the world's No. 2 personal computer maker is readying major expense cuts and may consider layoffs.
Spokesman Mike Maher said Dell was cutting costs, including travel and cell phone use, and was in the middle of an annual review which typically ended in some performance-related job cuts.
But asked if he would comment on a Wall Street Journal report that the company was preparing cost cuts of up to 10 percent amid slowing growth, he replied: "At this point, no, because the full financials will be reported on February 15.
"But it is fair to say that controlling operating expenses, which was clearly, clearly indicated in the January 22 (fourth-quarter) update and also during the (third-quarter) announcement, is a priority."
Citing people familiar with the directive, the newspaper reported in its Friday edition that Dell had warned some managers to prepare for expense cuts of between 8 percent and 10 percent.
The article also said some employees of the Round Rock, Texas, company believe as many as 4,000 of its 39,000 full-time positions could be eliminated in the first layoffs in the company's history.
Maher said he would not comment on speculation but added Dell was cutting back its temporary work force, in what he called a typical move at the beginning of a fiscal quarter.
Dell's stock fell $2-7/16, or 9.35 percent, to $23-5/8, by late afternoon on Nasdaq, where it was among the most active issues. In the past year, the stock has traded from $16-1/4 to $59-11/16.
Computer makers have been reining in their expenses recently, bracing for an extended period of weak profits. In January, PC and printer maker Hewlett-Packard Co. HWP said it would eliminate 1,700 positions, and Gateway Inc. GTW, said it would cut about 3,000 jobs.
The reports of cuts at Dell were taken by some as an indication of problems for the industry as well as a sign Dell was becoming more serious about costs.
"I think the industry conditions are still unstable," Bear Stearns analyst Andrew Neff said.
Buckingham Research Group technology analyst Peter Labe said Dell's strategy of cutting prices to maintain and increase market share has taken a toll on its bottom line, making significant cost reductions almost a necessity.
"Dell is well known as championing an aggressive price policy, particularly in tough times," he said, "and it's got to be funded out of somewhere."
Labe said layoffs would not be unexpected and that investors would probably welcome the expense reductions.
"I think the shareholders would rather have it funded from the fat that's built up over the good years and less out of their own pocket," he said.
In January, Dell warned that it would post disappointing results in the fourth quarter, joining a gang of other PC companies -- including Apple Computer Inc. AAPL, Compaq Computer Corp. CPQ, Gateway and Hewlett-Packard -- that have guided their outlooks lower.
In a conference call after the warning, Vice Chairman Kevin Rollins hinted that cost-cutting could be in the cards. "In a tough economic environment," he said, "the low-cost model wins."
Rtr 14:47 02-09-01 Copyright 2001, Reuters News Service
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