PC maker Dell plans to slash costs by $3bn in the next three years. Dell said yesterday that the savings will be achieved by reducing the price of materials and components going into its gadgets, and bringing down operating expenses. And that means job cuts.
Money saved from the cost reductions will be invested back into the business and used to improve profitability, Dell said.
"This does not happen over night," said Lynn Tyson, vice president of investor relations at Dell, on Dell's investor blog.
"We said we believe it will take three years to achieve an annualised savings of $3bn. This means that before you adjust for growth, we believe our costs at the end of our fiscal 2011 will be $3bn lower than at the end of fiscal 2008."
The company reported revenue of $61.1bn at the end of its fiscal 2008, on February 28, but said it cost $49.5bn 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 US 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.
The bulk of the $3bn 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.
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 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.