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Thursday, June 12, 2008

Dell Still in Need of Cost Control

It has been more than a year since Michael Dell returned to Dell, Inc., but the company doesn't seem to be rebooting very quickly.

Mr. Dell, founder of the computer-making giant, has been overseeing a restructuring since he returned as CEO in January 2007 after a three-year hiatus.

Mr. Dell has replaced executives, pursued new product lines and cut more than 5,300 employees, with at least 3,500 more to go.

Yet as of the end of January, costs were still a problem. Dell's selling, general and administrative expenses were up 50% at the end of the last quarter compared with two years ago, while revenue was up less than 10% over that period. Some of this may be due to current economic conditions, in which many people have turned to buying discount laptops from a variety of online sellers.

Analysts don't expect much better in the current quarter, which Dell will announce after Thursday's close of trading. They forecast net income of 32 cents a share, off about 6% from last year, due to stubbornly high costs, competitive pricing and weaker U.S. business and consumer spending.

“Dell is a show-me story,” says Toni Sacconaghi Jr., a Sanford Bernstein analyst. While he likes it in the long run, it hasn't shown yet.

By: Karen Richardson
Wall Street Journal