Dell Computer Corp plans to eliminate as many as 4,000 jobs, or 10 percent of its workforce, as price-cutting in the personal-computer market forces the company to reduce costs. The job reduction is the second this year by the biggest US PC maker.
The cuts will take place in the next six months, mostly in central Texas, and will primarily affect managers, said spokesman Mike Maher. The Austin, Texas-based company will shrink its staff through a combination of firings and attrition.
Dell, which announced 1,700 firings in February, is racing to pare expenses to preserve profit as it slashes PC prices, a bid to gain market share as demand slows. Rival Compaq Computer Corp two weeks ago said it would make its own PCs cheaper to challenge Dell's strategy, forcing Dell to respond with even bigger price reductions, analysts said.
"They're in an avowed price war with Compaq, and probably Gateway will enter it," said Henry Asher, president of the Northstar Group, which owns Dell shares. "They have to make ever more certain that they're the low-cost producer -- otherwise it's treacherous." Dell expects to take a pretax charge of US$250 million to US$350 million in the fiscal second quarter for the job reductions and consolidating some facilities.
Most US salaried workers will be required to take five days of unpaid time off during the second quarter, and Dell is limiting hiring of new employees, said Maher.
Dell shares rose as high as US$27.03 after the announcement.
They gained US$0.07 to US$25.91 in regular trading before the release. The stock has increased 49 percent this year.
Results in the first quarter ended Friday met forecasts for US$8 billion in sales and profit of US$0.17 a share, the company said. Dell will report final first-quarter results May 17.
Analysts have lowered their earnings estimates for the full year to US$0.77, the average estimate in a poll by First Call/Thomson Financial, from the US$0.80 average estimate of 30 days ago.
"This means it will take Dell a couple of extra quarters to work through the issues that they're having," said Dan Niles, a Lehman Brothers Inc analyst. "It gives you an idea that, relative to February when they last announced layoffs, things have continued to deteriorate." The escalating price war with Compaq means a "cloudy outlook" for Dell, said Niles, who hasn't lowered his estimate yet. When Dell reports its first quarter earnings, Niles said he'll look at the profit margins and will probably reduce his full-year estimate from US$0.78.
Houston-based Compaq last month increased its own job reduction by 2,000 employees, for a total of 7,000 firings announced this year.
No. 2 direct PC seller Gateway Inc, another Dell rival, also said it would become more competitive in pricing. In January, the San Diego company said it would fire more than 2,400 employees. The reduction was eventually increased to 3,000.
Dell's least expensive PC, the Dimension L, starts at US$679, according to the company's Internet site. Gateway's cheapest, the Essential, begins at US$799, while the Compaq Presario 5000 series starts at US$778, according to the companies' Web sites. Dell and Gateway's prices are the same as last week, while Compaq's cheapest model is US$50, or 6 percent, less expensive than it was a week ago.
Last week, Dell said its Dimension 8100 desktop PC running on Intel Corp.'s 1.7 gigahertz Pentium 4 processor -- the fastest PC chip on the market -- was selling starting at US$1,349, a 20 percent decline from a week earlier, when the machine debuted.
Dell's February firings were the first major job cuts since Michael Dell started the company in his University of Texas dormitory in 1984. Speculation about new job eliminations at Dell circulated on the Internet and in the Austin area for several weeks, as it did in February, and last week analysts said they expected the company to eliminate more jobs.
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