Dell's Earnings Beat Estimates: Analysts Praise Plans to Lay Off 8,000 More Workers

Jun 01, 02:10 AM

Current Headlines: By Andrew D. Smith, The Dallas Morning News

Jun. 1--Investors smiled but workers frowned Thursday, as Dell Inc. handily beat quarterly earnings estimates and announced plans to further boost profit with 8,000 layoffs in the next year.

Some observers saw the news as tangible evidence of a true turnaround at the company from Round Rock, Texas, which had floundered in recent quarters as its surging archrival, Hewlett-Packard Co., became the world's largest maker of personal computers.

Even Dell officials, who warned that earnings would probably "fluctuate" in coming quarters, said that recent reforms had helped produce the unexpectedly solid performance.

During the three months ending April 30, Dell made $759 million, or 34 cents a share, on revenue of $14.6 billion. Those figures were flat compared with last year's -- when Dell reported earnings of $762 million (33 cents a share) on revenue of $14.2 billion -- but far above analysts' expectations, which averaged 27 cents on $14.1 billion.

Dell shares climbed 2.6 percent before the news and another 7 percent shortly afterward. They have risen about 15 percent since Jan. 31, when Michael Dell began his second stint as CEO of the 23-year-old company and launched a series of transformations.

Mr. Dell has retooled much of the senior management, restructured many operations and even hatched plans to sell Dell computers at Wal-Mart and other retailers.

"These numbers are just the latest of many indications that Michael Dell is steering his company in the right direction," said Rob Enderle, an independent analyst who believes that Mr. Dell is handling the layoffs wisely.

"Everyone knew there were going to be layoffs, and that always hurts employee morale, but it appears that Mr. Dell is moving pretty quickly to get the layoffs behind him.

"That's much better than cutting jobs in dribs and drabs and keeping everyone constantly on edge."

But Dell sounded a cautious note in the news release that accompanied its earnings announcement.

While the company noted that its efforts to focus on sales profitability over sales growth had boosted average prices by 14 percent over the past year, it also said that reductions in supply costs had contributed much to last quarter's performance and that investors should not count on steady profit growth.

Concerns about operating expenses, which increased 25 percent over the past year, also surfaced in the release and helped explain why Dell will lay off about 10 percent of its 88,100 employees.

"While reductions in headcount are always difficult for a company, we know these actions are critical to our ability to deliver unprecedented value to our customers now and in the future," Mr. Dell said in the release.

Another possible concern: Ongoing investigations into Dell's accounting practices cost the company $46 million or 2 cents a share last quarter, and the company gave no indication when they will wrap up.

Dell announced last summer that the Securities and Exchange Commission had been examining its revenue recognition as well as issues "relating to accruals, reserves and other balance sheet items." The company also has revealed that the U.S. attorney for the Southern District of New York had subpoenaed financial reporting information.

Dell said nothing Thursday about whether these investigations -- along with an internal audit launched by the company's board of directors -- would affect prior earnings, but it did announce that its inability to file its annual statement on schedule would delay its annual shareholder meeting, which had been scheduled for July 20.

Still, even with all the pressures the company still faces, outsiders were impressed by what they saw Thursday.

"I think the biggest single positive sign is the sheer number of bold decisions," said Barry Jaruzelski, vice president of the high-tech practice at Booz Allen Hamilton, a consultancy based in New York.

"Michael Dell is not being timid, as you can see from the layoffs. He is willing to consider every aspect of the business as he looks for ways to get better."

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