May 31, 2007 11:11 pm

Dell to cut 10% of workforce

Dell, the world’s second-biggest personal computer maker, on Thursday announced plans to cut nearly 10 per cent of its workforce as part of a cost-cutting drive.

The move marked the latest step in a turnround designed to revive the company’s fortunes. Dell’s stock price has fallen sharply over the past two years as it has struggled against slumping sales and falling margins.

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News of the cull, which will affect about 8,800 jobs over the next 12 months, came as Dell reported better-than-expected first-quarter sales and profits.

“While reductions in headcount are always difficult for a company, we know these actions are critical to our ability to deliver unprecedented value to out customers now and in the future,” said Michael Dell, the company’s founder and chief executive.

Shares of Dell shot up more than 6 per cent in after-hours trading as investors reacted to the news. The shares ended the day up 2.6 per cent to $26.91.

Dell said the improved quarterly performance was “encouraging” and a sign of “good early progress” in its turnround effort.

The company reported preliminary first-quarter net profits ahead of most estimates at $759m, or 34 cents a share, on sales of $14.6bn. Dell made a net profit of $762m on sales of $14.2bn in the same period last year.

Mr Dell has taken a series of steps to jump-start growth at the company since he replaced Kevin Rollins as chief executive this year, including reshuffling the company’s top management team. However, he has warned the company faces a long struggle to regain its lost momentum.

Last week Dell announced that it would begin selling desktop computers in Wal-Mart stores, ending years of exclusive reliance on direct sales of computer equipment through the telephone and internet. It said it would also begin working more closely with third-party resellers.

Looking ahead, Dell said margins could come under pressure in the seasonally slow second quarter.

Dell said falling component costs and an increase in the average selling price of computer equipment had contributed to higher revenues in the quarter. But profits were dragged down by a $46m charge related to an investigation of the company’s accounts by the Securities and Exchange Commission.

The group said on Thursday that the investigation, which has uncovered “evidence of misconduct” and accounting errors, was in its final phase and it had not yet been determined whether it would be required to make any earnings restatement.

The last time Dell made big staff cuts was in 2001, when it cut 5,000 jobs following the collapse of the dot com bubble.

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