Despite topping analyst predictions for earnings during its first full quarter of 2007, Dell announced on Thursday that it will lay off approximately 8,800 employees over the coming year, or roughly one in ten on its payroll.
The news of the layoffs caused the price of Dell's stock to rise 3.6 percent in early trading on the Nasdaq. By mid-afternoon, however, the company's gain for the day had fallen back to below 2 percent.
Due to an ongoing investigation by the SEC into the company's accounting practices, Dell did not hold a traditional telephone conference to discuss its earnings reports. However, in a statement issued by the company, CEO Michael Dell said that "[w]hile reductions in headcount are always difficult for a company, we know these actions are critical to our ability to deliver unprecedented value to our customers now and in the future."
Trumped by Hewlett-Packard
Dell reported that its net income for the preceding quarter was $759 million, or 34 cents a share, which was slightly less than what it reported for the same quarter last year (net income of $762 million, or 33 cents a share). Wall Street analysts had predicted earnings of 26 cents a share for the computer giant, which recently lost its position as the top computer retailer to Hewlett-Packard.
Dell's total revenues of $14.6 billion for the quarter (an increase of 2.8 percent) also exceeded forecasts; analysts had predicted total revenues of just $13.9 billion.
The company reported widely varying results for its various business segments, with the strongest growth coming in the sale of its servers (up 19 percent from a year ago). Notebook sales rose 7 percent, but reflecting broader trends, Dell's desktop sales dropped 6 percent.
"The overall results were better than what a lot of people expected," said Rick Hanna, an equity analyst at Morningstar. "Their focus recently has been on value and not so much on volume, and these results confirm that approach."
In its statement, Dell said that its greater-than-expected growth reflects "early progress the company is making in its systematic effort to restore competitiveness to the core business, reignite growth, and build solutions critical to customer needs."
In its effort to regain its position as the top computer retailer, Dell recently brought Michael Dell back out of retirement as part of broad management restructuring. The company is also working to expand into untapped global markets (especially China) and improve support and service for end-users, particularly through the use of remote monitoring and resolution.
"I'm cautiously optimistic about Dell," Hanna said. "When Michael Dell came back on board, he outlined some priorities, and it seems like they are working. In particular, the company is benefiting from the focus on solution selling as opposed to box selling, the push into new countries, etc."
Hanna said that he did not expect Dell to announce additional layoffs in the near future. "I think the restructuring is a recognition that some fat had crept into the Dell corporate structure," he said. "I don't think it will dribble on; I think it's a one-time deal to push the restructuring and scale the business appropriately."