Dell Sees Ruthless Cost-Cutting

Thursday, May 03, 2001 NEW YORK — Dell Computer Corp., which recently emerged as the world's No. 1 personal-computer maker, will be merciless in managing costs, a senior executive said on Thursday, as it keeps the heat on a price war to seize market share.

``We will be ruthless in how we address our cost structure going forward,'' Tom Meredith, Dell's senior vice president of business development and strategy, said at the Merrill Lynch Hardware Technology conference here.

Meredith pointed to cost controls and aggressive pricing as reasons Dell was able to take market share from rival Compaq Computer Corp., from which it took the No. 1 spot in the PC market in the first quarter of this year.

Asked if layoffs could be part of that ruthless cost-cutting, Meredith said, ``Absolutely.''

Earlier this week, Dell declined to comment on growing speculation that it was planning a new round of layoffs. In February, it announced its first-ever large-scale layoffs, cutting 1,700 jobs, or 4 percent of its work force.

Dell Chairman and Chief Executive Michael Dell was quoted in Time magazine last month as saying the company ``screwed up'' by overhiring, adding that the February decision to cut jobs is a lesson that ``when things heat up quite a bit, we should take some pause.''

Meredith said he believes inventory levels across the PC industry built up to 29 days' worth in March from the mid-20s in February. The increase was especially marked at retailers and distributors.

``It's higher than people think it is,'' Meredith said.

Merrill Lynch analyst Steven Fortuna said he is not concerned about PC inventory levels, saying they have remained at about 25 days for the past few quarters.

Asked whether the PC industry has bottomed out, Meredith said, ``From the Dell perspective, we've been gaining share. If that's the case, then what's the problem? But those of our competitors who recently announced earnings, they don't appear to have hit bottom.''

For example, Compaq last week reported lower first-quarter earnings and scaled back its outlook for the second quarter. Meredith said the PC market remains fiercely competitive. Besides Compaq, the company's biggest rivals are Hewlett-Packard Co. and International Business Machines Corp.

``These competitors are fierce,'' he said. ``They're tough. They're big. They do have cash and they're willing to spend it.''

Meredith reiterated guidance given by Dell last month that Europe was ``starting to flourish'' for the company and that there were pockets of strength in Asia.

He declined to comment on results for Dell's fiscal first quarter, which ends on Friday.

Dell shares were off 77 cents, or nearly 3 percent, at $25.96 in morning Nasdaq trade, the low end of a 52-week range of $16.25 to $54.67.

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-- Martin Thompson (mthom1927@aol.com), May 04, 2001