Dell Technologies plans to cut about 2 percent of its workforce by the end of the year in a drive to trim costs after taking on some $47 billion in debt to close the largest acquisition in IT industry history, according to a report.
The Round Rock, Texas, company will cut between 2,000 and 3,000 jobs, mostly in the U.S., in an effort to cut $1.7 billion in costs over the next 18 months, Bloomberg reported.
In a conference call with media and analysts Wednesday, Dell CFO Tom Sweet said the company planned to cut costs from its supply chain and general administrative operations. In total, the company has about 140,000 employees in 180 countries, Sweet said. According to Bloomberg, the marketing department is also being targeted.
Sweet said Dell plans to aggressively pay down the $47 billion in debt associated with its $58 billion acquisition of data storage giant EMC, which closed Wednesday. He said the company expects cash flow to be three times the cost of servicing the debt.
A top executive at a large reseller that works with both Dell and EMC said he isn’t concerned about the cuts or the company’s debt. “Common sense says that you put together a company with 140,000 employees, obviously there’s redundancy. That’s the reality. There’s going to be a selective editing, if you will, that’s going to take place. It’s the nature of the beast. I don’t think it has any impact. Cisco just announced they’re laying off 5,000 and they’re not doing a merger.”
As for the debt, “Wall Street is smarter than any of us when it comes to managing money, and the debt was oversubscribed,” the reseller executive said. “I think Wall Street looked at this thing and yawned. As a partner, I don’t think there’s anything to worry about They’re going to invest in new technology; they’re going to continue to acquire companies.”
Still, competitors have latched on to the Dell debt load. HPE CEO Meg Whitman, whose efforts have focused on making her company smaller, told CRN this week that Dell’s nearly $60 billion in debt in total would compromise its ability to innovate or move quickly.
“We are getting more nimble and faster and more responsive to partners,” Whitman told CRN. We are doubling down on new technology … and we are de-leveraging the company. We went from $12.5 billion of net debt on the operating company to $5.3 billion of net cash. And Dell is leveraging up… which gives them less degrees of freedom in terms of doubling down on new technology. It’s going to be a cost take-out play.”
On the conference call Wednesday, Dell Chairman and CEO Michael Dell, now the head of the largest privately held IT firm in the world, said, “Our debt payments are less than our competitors pay in share buybacks and dividends.”
At the end of its most recent fiscal year ended Jan. 31, Dell had about $10.7 billion in long-term debt, mostly associated with going private in a $25 billion leveraged buyout in late 2013. Since then, it has paid off about $5 billion of the debt associated with that deal, Sweet said.
Dell reported cash flow of about $2.2 billion for its most recent fiscal year. EMC reported cash flow of $3.9 billion for its most recent fiscal year.