Dell Inc.: Writing a New Program

June 25, 2008
PC giant revises strategy to reduce costs and improve profitability.

Shaky economies always force companies to evaluate the direction they are heading and reassess their goals for an uncertain future. Back in March, Dell Inc., one of IndustryWeek's 50 Best Manufacturers for 2008, did just that when it introduced a revised plan for its fiscal 2009 and beyond. The global PC manufacturer outlined several actions intended to reduce total product costs across all areas, including design, manufacturing and logistics, materials and operating expenses.

The goal of the new strategy is to help restore competitive advantage to its operating model, rationalize operations and improve profitability and cash flow. Dell hopes the program will put the company in position to accelerate growth in its five focus areas: global consumer, enterprise, notebooks, small and medium enterprise and emerging countries, while improving profitability and cash returns.

As a part of a broader assessment of its global manufacturing and logistics network, Dell also said it would close its desktop manufacturing facility in Austin, Texas, and reaffirmed plans to reduce global employee headcount by at least 8,800 and related operating expense.

So far the new strategy seems to be working, as Dell reported record fiscal first-quarter revenue of $16 billion -- a 9% year-over-year increase. According to the company's chairman and CEO Michael Dell, the new priorities are driving growth in every product category and in every part of the world.

"These results are early signs of our progress against our five strategic priorities," Dell said. "Through a continued focus, we expect to continue growing faster than the industry and increase our revenue, profitability and cash flow for greater shareholder value."

Dell's first-quarter results were driven by better-than-industry growth of commercial and consumer products and services, and lower operating expense as a percent of revenue. However, headcount was reduced by about 3,700 in the first quarter, or 8% before the impact of acquisitions. Approximately 2,700 employees have been added through acquisitions, making the net reduction for the company about 5%.

Dell Inc.
At A Glance

Dell Inc.
Round Rock, Texas
Primary Industry: Computers & Other Electronic Products
Number of Employees: 88,200
2007 In Review
Revenue: $61.1 billion
Profit Margin: 4.82%
Sales Turnover: 2.22
Inventory Turnover: 53.76
Revenue Growth: 6.47%
Return On Assets: 11.5%
Return On Equity: 68.09%

Dell's growth strategy also includes the integration of Software-as-a-Service (SaaS) applications and remote management tools to deliver configure-to-order IT infrastructure services to commercial customers over the Internet. The recent acquisition of MessageOne Inc. for $155 million adds to the company's growing SaaS push, which already includes SilverBack Technologies Inc., Everdream Corp. and ASAP Software Express Inc.

"We are building a services supply chain that integrates the world's leading SaaS-based technologies to simplify the purchase, delivery and management of IT infrastructure services for companies and improve its price/performance," said Steve Schuckenbrock, president of Dell Global Services.

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