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Dell looks for further $1bn cost savings after profits dive

Paul Kunert

Dell has upped its cost cutting target by a further $1bn to prepare for the continued economic downturn, following fiscal Q4 results in which profits nearly halved despite a large reduction in op-ex.

In the three months to 30 January, net income fell 48% to $351m (£247.7m) and revenues dropped 16% to $13.4bn (£9.4bn), but operating expenses dropped $363m, down 16% compared to the same period a year earlier.

"A lot of IT spending is being deferred until there's better economic visibility," said CEO Michael Dell, who added the company was cutting its cloth accordingly.

"Within our business, we're being very disciplined in managing costs, generating profitability and cash flow," he added.

The original plan detailed in March 2008 was to take out $3bn in costs from the business by 2011 but the severity of the downturn has forced the industry heavyweight to take more drastic action.

"We now have a clear view to additional opportunities, and are raising our cost reduction target to $4bn," said Brian Gladden, CFO at Dell.

The vendor would not reveal if the additional cost cuts would mean further job losses - Dell already chopped 8,900 positions worldwide last year and swung the axe on 60 directors across EMEA this year.

However saving could also come outsourcing production - which already counts for 25% of its assembly - to contract manufacturers and Dell said there was no lack of interest from ODMs

Commercial revenues fell 17% to $6bn in the Americas and unit sales dropped 23%, as turnover in EMEA turnover went down 17% to $3bn and shipments dropped 19%. Asia Pacific revenues and volumes fell 24% and 19% respectively.

The global consumer division was one of the bright spots in terms of unit sales which grew 18% but a shift to lower cost PCs and fierce competition forced down revenues 7% to $3bn.

The company does not expect a dramatic improvement in demand which continues to be "uncertain and challenging".

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