Dell eyes $3 billion in cost savings in 3 years

Dell plans to reduce costs by $3 billion through job cuts and negotiating lower parts prices.

Dell, the world's second largest PC vendor, plans to cut costs by US$3 billion as it slashes the price of materials and components going into its gadgets and reduces operating expenses, including jobs, the company said Monday.

"Now this does not happen over night," said Lynn Tyson, vice president of investor relations at Dell, on the company's investor blog. "In fact we said we believe it will take three years to achieve an annualized savings of US$3 billion. This means that before you adjust for growth, we believe our costs at the end of our fiscal 2011 will be US$3 billion lower than at the end of fiscal 2008."

Money saved from the cost reductions will be invested back into the business and used to improve profitability, Tyson said.

The company reported revenue of $61.1 billion at the end of its fiscal 2008, on Feb. 28, but said it cost US$49.5 billion to generate that revenue, including operating expenses, cost of goods sold, research and development and other factors.

As part of its cost cutting, Dell plans to close a desktop manufacturing plant in Austin, Texas. A "massive shift in customer preference for notebooks" over the past three years was also a major factor in the decision to close the plant, said Tyson. In the 2008 fiscal year, Dell's laptop sales grew 37 percent, while desktop sales were up just 10 percent, she said.

Dell is also slashing jobs. The company has already reduced its workforce by 3,200 people, and plans to cut around 5,600 more jobs.

The bulk of the US$3 billion in savings at Dell will come from reducing product costs. The company will seek savings in all areas, from design, manufacturing, logistics, materials and operating expenses, according to a statement.

The company may also sell or spin off its financing arm, Dell Financial Services, it said. Dell acquired the remaining 30 percent of the financing arm last year from partner CIT.

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