Dell plans £1.5bn cost savings

Dell, the world's second largest PC supplier, plans to cut costs by £1.5bn through job cuts, operating expenses and reducing the price of materials and components going into its products.

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Dell, the world's second largest PC supplier, plans to cut costs by £1.5bn through job cuts, operating expenses and reducing the price of materials and components going into its products.

"This does not happen over night," said Lynn Tyson, vice president of investor relations at Dell, on the company's investor blog. "In fact we said we believe it will take three years to achieve an annualized savings of $3 billion. This means that before you adjust for growth, we believe our costs at the end of our fiscal 2011 will be $3 billion lower than at the end of fiscal 2008."

Money saved from the cost reductions will be invested back into the business and used to improve profitability, Tyson said.

The company reported revenue of $61.1 billion at the end of its fiscal 2008, on Feb. 28, but said it cost $49.5 billion 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 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.

Dell, which has already reduced its workforce by 3,200 people, 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.