Dell to shut Austin plant
New York, April 1, 2008
Dell plans to close its Austin, Texas desktop computer plant with 900 workers, as part of a plan to cut expenses by $3 billion annually in three years' time.
The world's second-largest maker of personal computers also said it was reviewing "ownership alternatives" for its financing business, which extends credit to customers buying Dell products.
Dell bought out the remaining stake of the financing business in December from CIT Group Inc, which has been hit hard by the turmoil in the credit markets and may be forced to sell itself.
The announcement came ahead of Dell's first analyst meeting in 3 years this week. Wall Street has been calling on Dell, which ranks behind Hewlett-Packard Co in the PC market, to cut costs more aggressively as profit margins have fallen.
"If you think about the computer industry, it is going through a shift to mobility," said Brent Bracelin, an analyst at Pacific Crest Securities, referring to laptop PCs.
"Most mobility products are being built in Asia, so having excess capacity in the US doesn't make a lot of sense. It's a smart move," said the analyst who has an "outperform" rating on Dell. "They're going to be talking about cost-cutting initiatives" at the analyst meeting.
The plant-related job cuts are part of Dell's previously announced plan to eliminate about 8,800 jobs, or about 10 percent of the work force. Dell's headquarters are in Round Rock, Texas, just north of Austin, the state capital.
The company said it had already eliminated 3,200 of the targeted jobs. The Austin jobs will be eliminated in phases and production will continue through Dell's fiscal fourth quarter, Dell spokesman Jess Blackburn said.
As for Dell Financial Services, Blackburn said the strategic review was unrelated to CIT's problems and that Dell may end up keeping the unit.
The review should be completed by Dell's fiscal third quarter, the company added. Dell also said it would reduce costs in design, manufacturing and logistics, materials and operating expenses. It declined to give details of the planned cuts in those areas. - Reuters