A bit more enlightening but still missing a large portion of Compaq's other tentacles.
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February 16, 2001 03:18
Dell Computer Corp. Lays Off 1,700 Employees in
Central Texas
By Leah Beth Ward, The Dallas Morning News
Feb. 16--Dell Computer Corp. -- the king when it comes to profits from personal
computers -- said Thursday that it has fired 1,700 employees in Central Texas in an
effort to stay ahead of a slowing economy.
Speculation about the layoffs -- which are unprecedented in size for Dell -- has
dogged the company for weeks, but officials wouldn't confirm or deny the reports.
The layoffs, effective Thursday, are across the board, the company said.
Dell, based in Round Rock, Texas, joins a long list of companies to announce work
force reductions lately. The company said the action would reduce expenses in a
softening U.S. and global economy, not to mention a slow-growing market for
personal computers.
Dell's action follows similar moves by an array of technology companies, from PC
makers like Gateway Corp. and Hewlett-Packard Co. to electronic-commerce
consulting companies and dot.com Internet companies. But the layoffs at Dell are
especially noteworthy because the company is considered the leanest PC company
in the world.
"This is a strong indication that the economy has slowed down, especially in
manufacturing," said Jerome Watters, regional economist with the U.S. Bureau of
Labor Statistics in Dallas. "The fact that it's Dell is even more proof of a slowdown."
Dell said many of the jobs eliminated were "redundant" because of a recent
reorganization of several business units. Over the past two years, the company told
employees, 12,000 workers were added based on expected growth that didn't
materialize.
No further layoffs are expected, the company said in a teleconference with news
media. In trading Thursday, Dell shares rose $2.06, or 9 percent, to $25.
On an appropriately gray, drizzly day in Austin, Dell employees were shaken by the
news, which was delivered via e-mail in the morning. Calling the layoffs "an extremely
difficult decision," the company said the computer business has fundamentally
changed.
"The next several quarters will determine who survives and who thrives in the
computer business" according to a copy of the e-mail. "We must take steps to more
aggressively manage our already lean cost structure."
The memo is not signed by any executive and was issued by "The Office of the
Chairman" to all U.S. employees. Most recently, 22,000 people worked for Dell in
Central Texas and 40,200 worldwide. The company said manufacturing and
distribution operations in Tennessee and international locations are not affected by
the job cuts.
One employee in sales, who asked that his name not be used, said he thought
management had handled the situation well. "Management did a good job of laying it
to rest. They just said, `This is the reason why this is happening and this is what we
needed to do.'"
Another said he was called in on his day off to get the news. "It was pretty jittery in
there," he said, also not wanting to be named.
Dell is a storied company not only because of its rapid growth but also because a
college kid named Michael Dell pioneered the direct model in his dorm room at the
University of Texas at Austin. He wrote a book about selling direct, Direct from Dell,
that caught the attention of corporate chieftains and entrepreneurs alike. Ford Motor
Corp.'s Jacque Nasser became a strong devotee.
But these days Dell is facing the same issue as the rest of the PC industry, and it's
proving to be quite vexing, analysts say. How does a computer maker morph into a
next-generation company? Many are trying.
Compaq Computer Corp., for instance, has launched an aggressive strategy in all
price points and power in servers and data storage products. The Houston company
is also trying to build a services and consulting business with assets it inherited from
its acquisition of Digital Equipment Corp. IBM Corp. stopped retailing PCs in 1999,
correctly anticipating the consumer PC slowdown.
James Vanderslice, an IBM veteran who joined Dell's Office of the Chief Executive
last year, said the company is significantly redirecting resources into the so-called
enterprise space, the large corporations that buy a range of servers and desktop
systems. In the highest end servers, he said Dell sales grew 73 percent for the year.
Dell is certainly in fine financial shape. Its fiscal fourth-quarter financial report, also
released Thursday, shows that earnings rose 17 percent, which analysts said is an
indication that the company's strategy of cutting prices to take market share has
been effective.
Profit from operations increased to $508 million, or 18 cents a share, from $436
million, or 16 cents in the year-ago quarter. The earnings per share were a penny
short of analyst expectations of 19 cents for the fourth quarter.
Sales jumped 28 percent to $8.7 billion from $6.8 billion. The company also took a
one-time charge of $105 million for severance packages for laid-off employees and a
consolidation of office space around Austin.
Mr. Vanderslice said the company will deploy in the first quarter of this year the
same strategy that boosted sales in the fourth quarter: Start price wars based on
falling component prices that win sales from competitors who have costlier supply
chains. "We'll run the same play again," he said.
But reshaping Dell beyond the first quarter won't be easy. The company is not known
for innovative research and development.
"They were the next generation company when the Web emerged," John Dodge,
editor of Zcast.TV. "Now they really have to reinvent themselves, and it's not clear
what they will be."
But Mr. Dodge sees another scenario. Dell can wait for the full effect of its
cost-cutting to fall to the bottom line and emerge even more profitable. "They could
come out of this quite well," he said.
-- Staff writer Crayton Harrison in Round Rock, Texas, contributed to this report.
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