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Michael Dell to Cut Costs, Management at PC Maker

Michael Dell, Chairman & CEO, Dell
AP
Michael Dell, Chairman & CEO, Dell

In a memo to Dellemployees days after returning as chief executive officer, Michael Dell said the beleaguered computer maker is quashing bonuses for 2006 and reducing managers to help cut costs and steer the company back toward dominance.

The e-mail sent Friday also revealed that Dell will not hire a chief operating officer, will push faster product development and will expand into new business to drive revenue growth.

In the e-mail, Dell wrote that the company ended its fiscal year Friday with "great efforts, but not great results."

"This is disappointing, and it is unacceptable," wrote Dell, who went on to say that he plans to remain CEO for the next several years.

Details of the shake-up came after Michael Dell replaced Kevin Rollins as CEO on Wednesday, returning to the helm of one of the world's largest computer manufacturers. The change came as Dell tries to fix mounting problems that include disappointing earnings reports, eroding market share and an ongoing federal accounting probe.

The company lost its No. 1 position in the industry to rival Hewlett-Packard last year, according to recent reports from IDC and Gartner.

A copy of the e-mail was first obtained by the Austin American-Statesman for its Saturday editions. The e-mail also was posted on the Statesman's Web site. Dell spokesman Bob Pearson verified that the e-mail was sent out Friday afternoon but he would not provide a copy to The Associated Press.

In exchange for not giving bonuses for 2006, Dell said the company would budget for "above-market raises" this year and readjust the targets for bonuses. In its executive ranks, the number of top managers who report to Dell would be streamlined from more than 20 to 12.

"We have great people ... but we also have a new enemy: bureaucracy, which costs us money and slows us down," Dell wrote. "We created it, we subjected our people to it and we have to fix it!"

Paul Bell, who now runs the company's European operations, will become top executive for the Americas operations that account for two-thirds of the company's revenue. Chief Financial Officer Don Carty will also take on more responsibilities, including human resources and investor relations.

Dell also wrote that the company will "build, partner and buy" in its fast-growing global services business.

In recent years, the company has been stung by a market glut of low-cost, low-profit PCs and weaker-than-anticipated sales of its pricier, more lucrative desktops and notebooks.

A class-action lawsuit filed this week in Austin claims that the company inflated profits with secret payments of about $1 billion a year from chip maker Intel . Dell officials have refused to comment on the suit.

Last year, the computer maker recalled 4.2 million potentially flammable notebook batteries made by Sony Corp., and after consistently posting earnings gains since its inception in 1984, also saw its profit drop.

The company's accounting practices remain under federal scrutiny, and the U.S. attorney for the Southern District of New York has subpoenaed documents related to Dell's financial reporting from 2002 to the present.

"We have a tough couple of quarters ahead," Dell wrote. "We didn't get here overnight and we won't fix things overnight either."

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