Dell May Fire Thousands to Cut Costs
Dell Computer Corp. may soon fire thousands of employees in the first major layoffs at the No. 1. U.S. maker of personal computers, a sign that the slump in technology spending is hurting even the industry’s top performers.
Separately, wireless technology giant Motorola Inc. said Friday it will cut as many as 4,000 chip-manufacturing employees, the third round of cuts announced in 10 weeks at the world’s second-biggest cellular phone company.
Shares in both companies slipped Friday as investor concerns about the seriousness of the economic slowdown outweighed hopes for increased efficiency at the two companies.
Dell’s stock, which was the top performer between 1996 and 1998 on the Standard & Poor’s 500 index, fell $2.56 to $23.50 a share Friday, or about 10%. Shares of Motorola fell 92 cents to $18.90.
“Investors are increasingly jittery,†said US Bancorp Piper Jaffray analyst Ashok Kumar. “The consensus is that commercial and consumer spending will recover in the second half, but we may not get the recovery. It’s wishful thinking at this point.â€
Dell declined to comment on the possible layoffs of underperforming staffers that were reported Friday in the Wall Street Journal and elsewhere. The firings would follow job reductions already announced at rivals Hewlett-Packard Co. and Gateway Inc.
Dell, based in Round Rock, Texas, is planning to cut its overall spending by 8%, Kumar said, and “the only way they can reduce their costs is by reducing the head count.†Dell has about 39,000 employees.
In the last year, Dell reduced its sales targets three times as consumers and then companies held back on buying PCs. Dell also cut prices to spur sales and is likely to pass Compaq Computer this quarter as the biggest seller of personal computers worldwide.
“Dell is well-known as championing an aggressive price policy, particularly in tough times,†said Buckingham Research Group analyst Peter Labe. “It’s got to be funded out of somewhere.â€
Competitors IBM and Compaq have been concentrating on selling complete computer systems, including high-end servers that run networks, and are therefore less vulnerable to slumps in consumer buying and price wars over business desktops, said Wasserstein Perella Securities analyst Stephen Dube.
But consumer-oriented PC firms such as Gateway and Apple, and to a lesser extent Dell, are more at risk. “The consumer business, and desktops in particular, are a terrible business,†Dube said.
Motorola’s job reductions affect about 12% of workers in its semiconductor products division, which has plants in Austin, Texas, Phoenix and five countries in Europe and Asia.
Since early December, Motorola has announced more than 9,000 cuts totaling some 7% of its work force, now about 130,000.
The Schaumburg, Ill.-based company has suffered from a slowdown in the semiconductor chip market and falling profitability in its cell phone operations.
Though industrywide semiconductor sales rose 7% in the fourth quarter to $1.9 billion, orders for new chips slipped by 19%. Semiconductors for computers, cars, Internet equipment and entertainment imaging accounted for nearly a quarter of Motorola’s $37.6 billion in sales last year.
Times wire services were used in compiling this report.
