Dell Technologies Inc. has said that it will keep cutting employees for the duration of the fiscal year that ends in February 2025.
TakeAway Points:
- Dell plans to reduce its personnel through February 2025. This will come after a hiring moratorium and a $328 million severance payment.
- Even though its stock price has increased by 39% this year, Dell’s AI servers’ high cost of Nvidia chips raises questions about profitability.
- PC sales are still not strong; Q2 revenue was 4% less than the previous year, and consumer PC sales were down 22%.
Reductions in workforce
Dell Technologies Inc. has said that it will keep cutting employees for the duration of the fiscal year that ends in February 2025. Dell to Continue Job Cuts Amid AI Server Profitability Concerns and 4% Decline in PC Sales. This decision is part of a broader strategy to control costs amid concerns about the demand for personal computers (PCs) and the profitability of servers optimized for artificial intelligence (AI). The company has implemented a hiring freeze, job reorganizations, and other measures to achieve a “continued reduction in our overall headcount,” according to a regulatory filing on Tuesday.
In June, Dell cut jobs primarily in sales, although the company did not disclose the number of affected workers. The company incurred a $328 million charge for severance expenses in the quarter. As of February, Dell had approximately 120,000 full-time employees globally.
“We remain committed to disciplined cost management in coordination with our ongoing business transformation initiatives and will continue to take certain measures to reduce costs,” Dell stated in the filing.
The company declined to comment further beyond the filing.
Concerns about AI server profitability
According to the report, Dell is focussing on expanding its business of selling high-powered servers for AI work, a move that has excited investors. The company’s stock has gained 39% this year through Tuesday’s close and is set to join the S&P 500 Index later this month. However, there are growing concerns about the profitability of these AI servers. The servers require expensive computer chips from companies like Nvidia Corp., which has impacted margins.
In the most recent quarter, Dell reported that a higher mix of AI servers hurt margins, although the company did see improved profit compared to the previous period. This concern is not unique to Dell; peers such as Super Micro Computer Inc. and Hewlett Packard Enterprise Co. are also facing similar profitability challenges with their AI server offerings.
PC sales decline
Dell’s more traditional business of selling personal computers has not rebounded as expected after a two-year slump. On August 30, Dell reported $12.4 billion in fiscal second-quarter revenue, a 4% decline from the same period a year earlier and slightly below estimates. Sales of business PCs remained relatively flat, while revenue from consumer-orientated PCs declined by 22% year-over-year.
The report states that the sluggish performance in the PC segment underscores the challenges Dell faces in balancing its legacy business with its new growth initiatives in AI and other advanced technologies. Despite these challenges, the company remains focused on disciplined cost management and ongoing business transformation initiatives.
