Business & Finance
News
2/28/2008
07:50 PM
Connect Directly
RSS
E-Mail
50%
50%

Dell's Profits Hurt By Restructuring Costs

EqualLogic and Everdream acquisition costs also hinder Michael Dell's quest to regain the company's one-time position as the world's largest PC maker.

Dell on Thursday reported a decline in fourth-quarter profits, as the company struggled with the high cost of turning its business around.

Dell reported a 6% drop in net income in the quarter ended Feb. 1 to $679 million from $726 million the same period a year ago. Contributing to the decline was $83 million in expenses related to research and development stemming from the recent acquisitions of EqualLogic and Everdream, and $54 million in expenses related to severance costs and facility closures from the company's restructuring efforts.

Since the return of company founder Michael Dell as chief executive in January 2007, the company has been rebuilding in an attempt to regain its one-time position as the world's largest PC maker. Over the last few years, Dell has lost market share to Hewlett-Packard, which displaced Dell in the top slot.

Besides increased spending on acquisitions to expand its business into other areas, such as support services, Dell also is spending more on higher-end computers for the consumer market and on selling products through retailers, which costs more than Dell's original model of selling online and over the telephone. As a result, the company has been working at cutting expenses.

Over the last eight months, Dell has reduced its head count by 3,200 employees. Nevertheless, more cuts are needed. "While Dell continues to drive towards a world-class cost structure and competitiveness we have much work to do," Michael Dell said in a statement.

On the positive side, Dell increased its gross margin, an indicator of profitability, to 18.8% from 17.1% a year ago, and from 18.5% from the previous quarter. In addition, revenue from U.S. consumer PCs increased 12% as shipments from a year ago rose 25%. Dell's longtime strength has been in business market, and it has been working hard at increasing its share of the consumer market.

Dell's overall revenue rose by 10% from a year ago to $15.99 billion.

Dell did not provide guidance for the current fiscal year, but said it would continue to incur costs as it restructures its business. In addition, the company said it could see a slowdown in customer spending.

"While the company believes these actions are necessary to drive long-term sustainable value, they may adversely impact the company's near-term performance," the company said. "In addition the company's results could be adversely impacted by more conservative spending by its customers."

Comment  | 
Print  | 
More Insights
The Business of Going Digital
The Business of Going Digital
Digital business isn't about changing code; it's about changing what legacy sales, distribution, customer service, and product groups do in the new digital age. It's about bringing big data analytics, mobile, social, marketing automation, cloud computing, and the app economy together to launch new products and services. We're seeing new titles in this digital revolution, new responsibilities, new business models, and major shifts in technology spending.
Register for InformationWeek Newsletters
White Papers
Current Issue
InformationWeek Tech Digest - July 22, 2014
Sophisticated attacks demand real-time risk management and continuous monitoring. Here's how federal agencies are meeting that challenge.
Flash Poll
Video
Slideshows
Twitter Feed
InformationWeek Radio
Live Streaming Video
Everything You've Been Told About Mobility Is Wrong
Attend this video symposium with Sean Wisdom, Global Director of Mobility Solutions, and learn about how you can harness powerful new products to mobilize your business potential.