Profit warnings shook company but long-term growth looks promising, writes John Collins

Speculation that PC manufacturer Dell, which employs 4,500 people in Dublin and Limerick, will cut jobs at its Irish operations, has been rife following a recent profit warning.

But the threat appeared to recede this week after the company announced its third-quarter figures on Thursday. Dell achieved its revised revenue targets and it seems that for the time being at least there will be no further job losses in Ireland, following last month's shedding of 60 staff.

Paul Bell, president and chief executive of Dell's European, Middle East and Africa (EMEA) operations, expressed disappointment that the company did not hit its latest quarterly revenue targets, but believes that the company has got its cost base right to deliver future growth, particularly in its newer lines of business.

Dell reported worldwide revenues for the third quarter of $13.9 billion (€11.87 billion), in line with the profit warning issued at the end of last month. At the end of the second quarter, it had forecast revenues of $14.1-$14.5 billion.

"We continue to be very optimistic about our long-term growth, particularly in our new business areas," said Mr Bell. "We have a lot of momentum in countries that we are not in for as long as our more mature markets and where we don't have as big a market share."

After years of growing ahead of the rest of the PC market, Dell is now delivering growth in line with the overall market, although it maintains its number one position with 18 per cent of the global PC market. Its price advantage over its competitors is not as great as before, and HP, the number two player globally, has been making inroads into its lead.

As a result, Dell has been looking at new lines of business such as services, software, consumer electronics and storage systems and desktop PCs now account for less than half its revenues.

All of these areas have delivered double-digit growth year on year, while revenues from desktop PCs actually fell two per cent from the third quarter last year. These markets also provide plenty of room for growth, although the company does face entrenched competitors. As far as possible, it has partnered with significant players to gain market share - for example, in the software arena, it has partnered with both Microsoft and Oracle to sell their software pre-installed on Dell servers.

But rather than Dell's ability to grow revenues and shave costs, the biggest threat to Irish jobs could actually be internal. It is currently planning a major manufacturing facility in eastern Europe and Mr Bell expects an announcement on where that will be located either at the end of the year or early in the new year.

Dell is currently talking to a number of governments, with Poland believed to be one of the leading contenders.

"Output in Ireland is twice what it was four years ago, but we decided for the next stage of development that we would put a second factory in eastern Europe to be closer to more of our customers," said Mr Bell.

"Customers in countries closer to Ireland have had a great experience, but its taken longer for the product to get to eastern and southern Europe."

Dell has two main operations in Ireland - a manufacturing facility in Limerick and a sales,marketing and support operation at Cherrywood, Co Dublin. The Irish operations have been successful at securing a wider remit from the global corporation - since the mid-1990s, Limerick has been home to a European solutions centre, where it demonstrates more complex solutions to its big customers, while the Cherrywood operation is now an EMEA business centre as well as selling to and supporting customers in the UK and Irish markets.

Despite the recent job cuts, Dell's Irish headcount is actually up this year. It recruited 300 new staff in Dublin at the end of the summer and is taking on 800 contractors in Limerick in advance of the Christmas and year-end spike in sales.

The recent Irish job losses were part of a global cost-cutting exercise that saw the company let go about 1,000 staff worldwide. This contributed to a one-time charge of $442 million in the latest results, although Mr Bell pointed out that three-quarters of this was a provision for fixing a component fault in its Optiplex line of PCs.

Mr Bell said that the company had taken action in its bigger, more mature markets, which "are soft relative to other parts of the world". The company is now looking at more conservative growth rates in the near term and he believes that the European cost structure is now correct to deliver the forecasted fourth-quarter revenues of $14.6-$15.0 billion.

Despite Mr Bell's assurance that Dell "will continue to grow output in Ireland as we grow in northern and western Europe", it it is not impossible the company's Irish operations could be scaled back in mid-2007 as the eastern European facility comes online.