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Dell announces major cost-cutting drive

by Scott Bicheno on 1 April 2008, 18:45

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Dell founder hath a lean and hungry look

With apologies to Shakespeare, when Michael Dell came back in January 2007 as CEO of the company he founded, he found too many ‘fat, sleek-headed men, and such as sleep o’nights.’ Like Cassius in Julius Caesar, Dell decided drastic cutting was in order.

The company shed 3,200 employees over the last nine months and on Monday announced a target of at least 8,800 more, starting with the closure of a PC factory in Austin, Texas. Dell Financial Services may also be sold off.

In a separate message to shareholders disappointed by a four percent drop in share price following below-forecast earnings in Q4 of fiscal 2007-08, despite the introduction of new blade servers and the attractive XPS One desktop, Dell promised to continue to wring out costs while investing more in R&D to increase product innovation.

The company currently spends only one percent of sales on R&D, considerably less than competitors HP (3.2 percent) and Apple (3 percent). And that’s at current levels. HP and Apple spent far more when they were clambering out of their respective holes.

Merrill Lynch analyst Jeff Fidicaro warned investors that the measures will impose a drag on operating margins, which ‘may not prove to be the best timing’ with recession in the air, citing Sun Microsystems’ relatively low return on increased R&D since 2001.

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