) chalked out some strategies targeting a profit pool, going
forward. Keeping in view of Dell's performances over the past few
quarters, management's decision to cut cost aggressively is sure to
give the fundamentals a boost.
Recently, the world's third largest PC maker announced its
intention to reduce organizational costs by roughly $2.0 billion
over a period of 3 years. Specifically, Dell wants to save $800.0
million and $600.0 million in sales delivery and supply chain
areas, respectively. The rest would come from restructuring service
delivery and general and administrative heads. However, Dell did
not mention any job cut. Notably, its rival
) recently announced a massive headcount reduction by around 27,000
in an attempt to optimize cost.
The basic idea of this cost reduction is entirely
profit-oriented but the main focus will remain on a lateral shift
from traditional computing business to a high-margin
enterprise-class software and services market. The cost saved from
the initiative will help fund further acquisitions targeting the
Though cost reduction is the prime focus, Dell is committed to
return value to shareholders. Share repurchase was a constant
program till now. But the company will now distribute a portion of
profit by way of paying a dividend. The first quarterly dividend
(since its inception) of 8 cents per share will cost Dell around
There is no doubt about positive investor sentiment post the
dividend announcement. But the problem lies elsewhere. Over the
past few quarters, Dell's cash balance has fallen continuously. In
the last quarter, Dell generated a cash balance of $13.7 billion,
which was down from $14.8 billion in the prior quarter.
Apart from this, Dell's continuous acquisition spree and
expenses on research and development will further reduce its cash
balance. Also, there is uncertainty regarding the time when the
synergies from the acquisitions will be felt.
Yesterday, the stock rose 2.6% following the dividend
announcement on June 12. But concerns over Dell's ability to
continue dividend payout and fears of losing PC market share to
Asian manufacturers led to a bearish view for the short term.
Currently, Dell has a Zacks #4 Rank, which implies a short-term
DELL INC (DELL): Free Stock Analysis Report
HEWLETT PACKARD (HPQ): Free Stock Analysis
To read this article on Zacks.com click here.