Dell takes more hits as its reorganization continues

Dell Inc. took a 6 percent hit in profits for the fourth quarter of its fiscal year, warning that the earnings slide could continue in light of cautious consumer spending.

But in a conference call with analysts Thursday, CEO Michael Dell and other officials also pointed optimistically to a high growth rate in his company's consumer sales channel, success achieved so far in reducing head count, and expansion of activities in Dell's core business of enterprise computing.

"We were very pleased with the acceleration of our growth, particularly in notebooks and emerging markets and in the consumer business," said Donald J. Carty, Dell's vice chairman and CFO, at the start of the call. "This growth was driven by what we believe is the most robust portfolio of products and services in our entire history as a company."

Overall, Dell's consumer products showed a 12% growth rate, and Dell picked up three points of market share in the category during the quarter, according to Carty.

On the other hand, Dell also posted a 2% operating loss for the retail channel. But executives claimed they expect to make operations in Dell's consumer offerings more efficient as the company finds its footing once again among consumers.

"We're re-engineering our entire cost structure to be the best in the industry. Improvements in profitability will take some time as we build out a new portfolio of [consumer] products but based on the actions we're taking, I don't see any impediment to Dell having similar levels of profitability to our competitors in this space," according to Michael Dell.

Dell isn't done with layoffs yet, Carty said. But over the past year, the company has cut its head count by 3,800 people. Although 2,100 jobs have been added in "customer-facing positions in sales, service, and support," 5,300 "non-front-line" jobs have gone away.

Carty also said that Dell plans to improve the efficiency of logistics in the retail channel, while nailing down better product designs for consumers.

"You know, you need to have the right product with the right features at the right cost," he told the analysts during a Q&A session.

Meanwhile, on the enterprise side, Dell now wants to become "a leader in storage, virtualization, and power and cooling," not just in servers and systems, Michael Dell told the analysts.

As accomplishments in that area, he cited the recent launch of Dell's tenth-generation blade server architecture, the acquisition of storage area network player EqualLogic; and a deal with VMWare around virtualization.

Also during the Q&A, Carty noted that Dell has made a lot of acquisitions lately around software as a service, including Silberback, Everdream, and most recently, Message One.

These acquisitions are part of a plan to build up services revenue, according to the CFO. "You should clearly see [acceleration] in that very rewarding part of our business," Carty maintained.

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