Dell denies layoffs, stock down
February 09, 2001 01:10 PM ET
by Michelle Rushlo
Computer maker Dell (DELL) is managing its costs carefully but reports that it is laying off workers are purely speculative, a company spokesman said today.
Dell's stock sank about 8 percent in midday trading on a report in the Wall Street Journal that the company planned expense cuts of between 8 percent and 10 percent and could be eliminating more than 10 percent of its workforce.
"The reports are pure speculation and rumors," said Dell spokesman Mike Maher.
Speculation of Dell job cuts began Thursday when a staffing firm said an Austin, Texas-based company was cutting back its number of temporary workers. Dell is based in suburban Austin.
Maher said Dell has cut back its temporary workforce but that it is not unusual for the company to scale back its temporary workers at the beginning of a quarter and scale up in the middle and end, as demand rises.
Dell is carefully managing its travel and other expenses, Maher said, and though the company continues to recruit, hiring is based on the demand for business. "We're a lean company to begin with," he said.
On Jan. 22, Dell warned analysts that the slowing economy was hurting sales and that it would likely earn 18 to 19 cents per share rather than the 25 cents analysts had previously expected.
Investors worried?
Charlie Wolf, an analyst at Needham & Co., said the beating the market was giving Dell's stock today could indicate investors are worried that things could be even worse. Dell is scheduled to announce its earnings next Thursday.
But Ashok Kumar, a U.S. Bancorp Piper Jaffray analyst, said investors may just be taking profits, noting that the stock price has risen dramatically since the beginning of the year. "The stock has had a very good run."
He said layoffs would not be surprising from Dell, noting that most other computer companies are reducing headcount, at least unofficially. Both Gateway (GTW) and Hewlett-Packard (HWP) have announced layoffs since the beginning of the year.
For Dell, which has some of the best margins in the business, most of the costs are in labor, he notes, and the company has indicated it would like to reduce its budget about 8 percent.
"It could be that the company is telegraphing they are not expecting a sharp snapback" in demand, Kumar said.
Wolf said he is not as pessimistic as the market seems to be about Dell's growth prospects and its margins, in part because Dell may not need to be as aggressive about pricing as feared.
During the company's January call, Dell officials told analysts that it would reduce its prices to gain market share, but since then, its major competitor Compaq Computer (CPQ) has said it will not chase unprofitable business. That could mean that Dell won't have to price as aggressively as previously thought, Wolf said.
Shrinking market
The personal computer business has been hit by a combination of a slowing economy and a shrinking new market for its products. Compaq, Hewlett-Packard, Gateway and Apple (AAPL) all warned of and reported lower than expected earnings.
Dell, which sells its computers directly to customers instead of using resellers, has grown dramatically over the past several years. In the past four years, the company, which now has 39,000 employees worldwide, has added 14,000 employees in central Texas alone.
"They've grown like a weed for the last four or five years. Unbelievable," Wolf said. "They were selling a lot of stuff. They had to."
upside.com |
