Dell Sticks to Forecast, Sets More Job Cuts

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Updated from 4:34 p.m. ET

Dell (DELL) said Monday that it expects to meet its own lowered guidance for fiscal first-quarter earnings and revenue, and it set plans for a new round of job cuts to help it control expenses amid an industry-wide price war.

Dell said that it expects to post revenue of $8 billion for its first quarter, which ended Friday. Earnings, Dell said, would equal 17 cents a share. Both figures are in line with the outlook Dell gave investors when it reported its fiscal fourth-quarter results in mid-February. At that time, Dell lowered its expectations for first-quarter sales to $8 billion from $8.4 billion, and cut its outlook for earnings to 17 cents a share from 19 cents a share.

Dell didn't give any color on where things are headed, saying it would comment on its expectations for the fiscal second quarter when it reports its results on May 17. But the company said that continuing weak demand has forced it to eliminate 3,000 to 4,000 full-time positions in the next two quarters. The cuts, which represent up to 10% of Dell's total workforce, will affect positions in engineering, manufacturing and sales and marketing. Dell also said it has "significantly" limited the hiring of new employees, and will force most of its salaried employees in the U.S. to take time off without pay during the second quarter.

The news confirms recent speculation that Dell was preparing itself for a new round of layoffs to deal with the declining profit margins caused by the company's aggressive discounting of its products. It marks the second time in Dell's history that it has cut jobs, the first such occasion having taken place in February, when the computer manufacturer set plans to let 1,700 workers go.

The company expects to record a pretax charge of $250 million to $350 million in the second quarter primarily related to the job reductions and the consolidation of facilities.

How investors react to Dell's news is largely a function of how far their expectations have fallen for the former Wall Street darling. Sales of $8 billion represent growth of 4.3% from the same period last year. Earnings of 17 cents a share, meanwhile, represent a 23% decline. Dell currently trades at more than 33 times its expected fiscal 2002 earnings. As for the remaining three quarters of fiscal 2002, the company said it "remains cautious about the outlook for the balance of the year."

Right now, investors in after-hours trading are taking the newly conventional line that the absence of bad news is good news. Dell was lately trading at $26.73 on Island, up from $25.91 where it finished regular trading.

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