Monday, March 26, 2007

Paperstand (C, DELL)

The WSJ reports that Citigroup (C) execs are putting the finishing touches on a restructuring plan that is likely to involve around 15K job cuts and a charge against earnings of more than $1bn. The stakes are high for Citigroup CEO Charles Prince, who announced a cost-cutting review of operations late last year and has billed the outcome as critical to rejuvenating the co. Mr. Prince is facing mounting pressure from both inside and outside the co to reduce Citigroup's expenses, which are rising at a faster rate than rev, to deliver better financial results, and to drive up the co's stagnant stock price.

“Heard on the Street” column out on Dell (DELL), saying that Wall St wants the co to go on a crash diet to fatten up its stock price. Dell has enjoyed some of the PC industry's highest profit margins, but over the past few years, the co's operating expenses have rapidly increased, up more than 30% to $1.7bn in the past 2 years, while it has struggled to keep sales rising at the same rate. A major reason for Dell's bloated expenses: a soaring headcount. In the 2 years since Jan05, Dell's employee base has jumped by nearly 50%. In that same period, the co's rev rose 7%. Dell's operating margin dipped to 5.6% in FebQ, down from 8.2% yoy. Now Wall St. is saying that one of the PC industry's leanest co’s has gotten too flabby. Sunil Reddy, of Fifth Third Asset Mgmt, says Dell's expenses have to come down for its profits to go up. "I wouldn't be surprised if they announce some kind of work-force reduction plan," he says. Mr. Reddy says investors want to see Dell's operating margins rise to the 6% range. Chirag Vasavada, of T. Rowe Price Associates, says Dell needs to start "cutting heads or holding operating expenses steady and growing sales."

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