Business Turnaround Strategy – February 26, 2009

“Within our business, we’re being very disciplined in managing costs, generating profitability and cash flow, and investing in ways that separate Dell from others today and when the economy inevitably improves.”
– Founder and Chief Executive, Michael S. Dell.

In February 2009, Dell Computers announced that it would strive to cut an additional $1 billion a year from the company’s costs by 2011. Earlier in 2007, Michael Dell, had returned as CEO and began an aggressive cost-cutting program to turnaround the company. To counter the economic downturn,
Dell’s strategy was to try and keep profits high even if it meant missing out on some sales. The company also wanted to increase its services and software businesses by making
acquisitions. Dell is also looking at reducing the cost of its components. The average cost per computer has fallen by 5% in the past year.

However, Dell is facing the heat as businesses and other customers are sharply cutting spend in technology. Sales in all of its major hardware businesses fell (Dell’s server, software and services businesses declined as well, while storage sales rose). Other leading companies in the PC business like
Hewlett-Packard, reported a drop in PC sales during (19% drop in its fourth quarter revenues of $8.8 billion). Dell reported a 48 percent drop in net income of $351 million from $679 million for the same period last year. Dell’s revenue in the quarter ended Jan. 30, dropped by 16% to $13.4 billion from the $16 billion reported last year. Since 2005, this is Dell’s lowest total and the lowest fourth-quarter profit since 2002.

Dell Sales drop across major business areas