Supply chain restructuring fails to improve Dell's profits

Global - Dell's latest supply chain network restructuring coupled with cost-cutting measures have failed to turn around the slump in profit. The company reported a second-quarter profit dip of 17%. Operating expenses are currently at 12.2% of revenue, a decrease of 1.6% and also the lowest level for Dell in six quarters.

Michael Dell, CEO of Dell said, "If I look at the situation in the second quarter, we would have to say it was more self-inflicted. When restarting growth, what I can tell you is, it's an imprecise process. [There could be] some parts of the business where we were probably too aggressive.''

Media sources reported Dell would increase its global sourcing levels to lower its procurement costs. In May this year, Dell announced their intention to source up to US$23 billion worth of components from Asia this year, a figure which could rise to US$29 billion by 2009. 

Brian Gladden, CFO of Dell said, "We are making progress in improving productivity and reducing costs. Strategic actions [are in place] to accelerate growth in certain areas of our business affected gross margins this quarter and there will be some non-linearity in the improvements in our operating income margins as we rebalance our portfolio, make cost improvements and drive growth."

Dell has spent US$27 million in the amortisation of purchased intangibles and US$25 million in business realignment costs in the quarter. The company is working towards achieving annual cost reductions of at least US$3 billion by the end 2011.