Analysts had been expecting Dell to announce layoffs when it reported fourth-quarter earnings after market close Thursday. And as first reported by CNET News.com, Dell had already cut its fourth-quarter temporary staff amid a rapidly slowing PC market.
Most of the new layoffs will be in administrative, marketing and product-support areas and are part of an overall cost-cutting initiative, according to Dell. The layoffs will not affect international operations or the company's significant operation in Tennessee.
"The vast majority are in central Texas," Dell spokesperson Mike Maher said. A few hundred may come from other locations around the country, but no other layoffs are being evaluated.
Round Rock, Texas-based Dell employed 22,000 people in Texas and 40,200 worldwide at the end of its fourth quarter 2000. The cuts represent about 4 percent of Dell's work force.
"This is the first reduction of this size or this scale," Maher said. "But I would also ask you to look at it in context of Dell's growth over the years."
Dell's work force swelled by about 16,000 during the past two years.
Some of the cutbacks are being made because of redundancy created through recent reorganizations, but not all, Maher said. In response to questions about whether Dell might outsource some of those functions he added: "We'll do whatever is best for the business. I wouldn't be able to speculate about how we would cover those positions at this time."
Maher said changing market conditions necessitated the layoffs. "There are lower expectations for industry and company growth. If you understand our position, we are already a low-cost leader. That will extend our position in the marketplace."
Analysts had expected as many as 5,000 layoffs, but Maher said Dell has no other job cuts planned.
"We don't anticipate any more layoffs," he said.
Dell isn't the first PC maker to announce layoffs recently. Hewlett-Packard said last month it is cutting 1,700 jobs, or 2 percent of its work force, while Gateway is axing around 3,000 positions, or 10 percent of its headcount.
Where the round rock falls
News of the layoffs comes as Dell hunkers down for a slower period of growth.
"We think the company will use this week's conference call to finally lower the top-line growth expectation for the current fiscal year from 20 percent to (between) 15 percent to 20 percent," Merrill Lynch analyst Steven Fortuna wrote in a Tuesday research note. In recent years, Dell's revenue grew by 30 to 50 percent annually.
Dell has not been insulated from the consumer PC sales slump in recent months. The company has moved up into the fifth position in the U.S. consumer PC market, according to market researcher IDC, exposing Dell to sales problems affecting Apple Computer and Gateway, among others.
Corporate PC sales also stalled during the fourth quarter, as the slowing economy forced companies to cut back on purchases. One issue is slower-than-expected Windows 2000 upgrades.
A recent Merrill Lynch survey of 50 chief information officers revealed that most planned to increase technology spending by 6 percent this year, down from 12 percent in 2000.
"We believe the overall economic uncertainty is the driving factor behind companies pulling their purse strings a bit tighter this year," Merrill Lynch analyst Stephen McClellan wrote in his report on the survey.