Dell Earnings - Schwing and a Miss

Dell reported earnings on Nov 30, and hosted its first conference call with analysts in 18 months (since their accounting scandal which overstated financial results to meet Street expectations). They also released a scorecard that contains the headcount information.

http://www.dell.com/content/topics/global.aspx/corp/investor/en/webcast_33?c=us&l=en&s=corp

When Michael Dell took over the reigns of the Company last January (2007), he announced a reorganization that would reduce headcount by 10% - from the 88,000 level (which includes regular employees and contractors).

His base to begin the employee redundancies was 87,600 in 3QFy07 - this was comprised of regular headcount (79,100) and temporary contractors 8,500).

As of 3QFy08 (the earnings report of Nov 30), total headcount = 89,100, which is comprised of regular headcount (81,900) + temporary contractors (7,200).

In other words, rather than reduce headcount by 10% to the 80,000 level, Dell actually increased headcount to 89,000.

Huh???

Dell had 9 months to reduce headcount, and be within horseshoe throwing distance of their 10% reduction goal, ....and they go up by 1,000?

So Dell was not even close to their employee reduction goal. So does this mean that there were no layoffs at Dell over the last year? Quite the contrary. There have been several rounds of layoffs of various staff including engineers. The net increase was the result of massive hiring in marketing and finance. Check of the Dell careers website. There are numerous postings for jobs there.

I had actually heard that headcount was in the 92,000 range in late September, but I guess they got the axe swinging pretty heavily in the last three weeks of the quarter.

Of course, this was all in addition to the margin concerns, so the stock took a hit anyway. However, it shows that they won’t even be close on cost controls to meet their earnings estimates.

Bottom Line: Dell needs to significantly increase its revenue numbers, and show superb execution on their new strategy to sell units at retail. This did not occur, and won’t happen this quarter either.

Side Note: I listened to the conference call, and was thoroughly amazed at the way Don Carty tried to handle the analyst community. If he thinks that these folks (many of them have been following Dell for 10 years), are like the sheep that followed American Airlines, and will accept whatever he says, or accept obfuscation and a lack of answers (we aren't going to go into that much granularity any more), then he had better think again. I give Carty 12 months - enough time to collect a multi-million dollar paycheck.