Dell Sees Further Softening In Global IT Market - InformationWeek

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Infrastructure // PC & Servers

Dell Sees Further Softening In Global IT Market

The computer maker saw its stock drop to a 10-year low Tuesday, after reporting that global demand for its products continues to erode.

Dell on Tuesday said it is seeing a "further softening" of demand for its products, the second warning in as many months by the computer maker.

Dell saw its stock fall to its lowest level in 10 years following the disclosure. The company reported Aug. 28 that the "continued conservatism in IT spending" it saw in the United States had spread into Western Europe and several countries in Asia. On that same day, Dell reported a 17% drop in profits.

In the latest announcement, Dell said demand had further eroded: "The company is seeing further softening in global end-user demand in the current quarter."

Dell is in the middle of a major reorganization that began early last year with the return of founder Michael Dell to the chief executive post. During Dell's three-year absence, the company suffered a decline that led to it losing its status as the world's largest PC maker to Hewlett-Packard.

Since his return, founder Dell has embarked on an overhaul that included a major push into consumer markets. Rather than sell solely online, the company started selling its PCs through major retail outlets worldwide.

In addition, the company continues to reduce expenses, which includes a reduction in its workforce by 8,900 employees. The company also plans to move most of its production to contract manufacturers, according to The Wall Street Journal. Founder Dell has promised Wall Street that he will cut at least $3 billion in spending by end of the fiscal year 2011.

On Tuesday, the company said it expects "to incur costs as it realigns its business," but said the cuts over time would improve growth, profitability, and cash flow. The company released the statement shortly before executives addressed investors at the Bank of America 38th annual Investment Conference in San Francisco. Dell is scheduled to release earnings for its fiscal third quarter Nov. 20.

While HP also has been cautious in its guidance, the company has been less bearish than Dell. The computer maker on Monday announced that it would cut 7.5% of its workforce, or 24,600 jobs, as a result of the $13.2 billion acquisition of EDS. The cutbacks would occur over the next three years and would eventually result in an estimated $1.8 billion in annual cost savings, HP said.

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