All is not swell at Dell

November 4, 2008: 5:52 PM ET

By Scott Moritz

Dell (DELL) is trying unpaid vacations (for starters). 

The No.2 PC maker, already grappling with a massive turnaround strategy, is taking a closer look at expenses and has informed employees of a company-wide cost cutting plan that includes voluntary five-day unpaid leaves for everyone.

According to an internal memo confirmed by a company representative, Dell has frozen its hiring and is considering a range of cost-reduction plans.

In addition to the unpaid furloughs, the company is offering buyouts and cutting some of its contract workers. Dell already completed a 10% staff reduction plan this year that was put in place in May.

Sales, particularly in the company's PC business, started slumping in September, and Tuesday's move shows they haven't bounced back yet. Dell is scheduled to release its October earnings results November 20. Some observers are bracing for a shortfall warning before then, given the slumping demand and overall decline of the economy.

Dell has been particularly vulnerable to the slowdown, having started its shift to a retail sales strategy and away from its famed buyer-direct, made-to-order manufacturing scheme. The company had boosted its staff levels for the transition.

In 2005, Dell had 72,000 employees, and by the end of 2006, the company had about 90,000 workers. Dell had 88,000 employees at the end of last year. "These were mostly white-collar workers brought in to build the business," says Cowen analyst Lou Miscioscia. "Things have gotten a lot more challenging," says Miscioscia, who doesn't see the other PC makers like Hewlett-Packard (HPC) or IBM (IBM) having as bad a problem right now.

The big problem for Dell says UBS analyst Maynard UM, is that "they are unfortunately retooling during the backdrop of a weak end market. "

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