Dell Sheds $2 Billion in Retreat From PC Business

Less than a decade has passed since Dell was the gold standard in PC sales. Eschewing retail stores in favor of a website where shoppers could customize their own laptops, Dell offered low-cost, well-designed computers and built a supply chain that was the envy of the industry. Today the company announced a plan to shed $2 billion in expenses, setting the stage for a new round of cutbacks and layoffs. What happened?

In a word: Tablets. Introduced in early 2010, Apple’s iPad signalled a new era in personal computing, one in which the traditional PC appears destined to play an ever more specialized role. The streamlined form factor hit Dell hard in what had always been its core operations: Windows-based desktops and laptops. Asian competitors like Lenovo and Asus also offered stiff competition on the low end of the market.

Founder Michael Dell stepped back into the CEO role to turn things around, pushing the company into software and IT services. But PCs still account for around half of Dell’s sales.

Not for much longer, though. Following a slump in Dell’s share price that has shrunk its market value by a third, Michael Dell told analysts today that the company will cut its costs by $2 billion during the next three years. Bearing the brunt of the cuts: Dell’s once-thriving PC business.

The restructuring will accelerate Dell’s push into IT services, consulting and software, areas of tech already dominated by big names like IBM and HP. Dell described its software business as “modest” but holding more growth potential than its aging PC business. It is capable of making Dell a company “unencumbered by a legacy of old stuff,” he said.

Dell told analysts the tech industry is “constantly in transition.” And so, it seems, is Dell. But it’s one thing to be leading the charge and another to be changing horses just to keep up. With today’s announcement, Dell has shifted decisively from the former to the latter.