Slump in profit margins is not keeping Dell Inc. from ramping up hiring at its call centre facilities in Ottawa and Edmonton.
But industry analysts say the Round Rock, Texas-based computer company should concentrate on cutting costs and revamping its core offerings.
Susan Sheskey, vice-president and chief information officer for Dell, said the company would be recruiting as many as 1,000 new employees for the Ottawa centre and would hire several hundred more workers at the Edmonton facility by fall this year.
Michael Jaillet, the site director for Dell’s Ottawa site said the new hires would increase the workforce to about 1,400 employees in the country’s capital. The Edmonton site would eventually have about 1,200 employees by the end of 2006, she said.
The new hires would include customer service and sales personnel as well as technical support worker, Jaillet said.
Sheskey said the ramp-up was part of the company’s global strategy that also included increased investment in IT services.
“Canada is very important to Dell. That’s the location where we innovate and launch products and services,” said Sheskey.
IT service is where Dell is able to deliver the “enhanced customer experience” that differentiates the company from other computer makers, said Sheskey.
“It is where we are investing strategically to build for Dell’s future in the long term.”
The company also recently partnered with Google to embed its software in Dell PCs. Dell also replaced Intel Corp. with Advance Micro Devices (AMD) Inc. as the microchip supplier for its high-end corporate servers.
These initiatives, however, will not mean much if Dell fails to broaden and deepen its core market, said one industry observer.
Simon Yates, an analyst at Forrester Research Inc. of Cambridge, Mass., said Dell should be concentrating instead on improving the products that form its areas of strength.
“They should build products that people will be interested in. These initiatives will come up empty if they fail to broaden and deepen their market core,” Yates said.
Another industry analyst thinks the Google and AMD moves were wise decisions but views the recent announcements as a sign of the “pressure” Dell is receiving from investors.
Notwithstanding the fact that Dell’s first quarter revenues for 2006 rose six per cent to US $14.2 billion, the company’s profits fell six per cent to US $762 million.
“The heat is on. If Dell weren’t getting pressure, you wouldn’t see this kind of action,” said Carmi Levy, a senior research analyst for London, Ont.-based Info-Tech Research Group Inc.
“These are the kind of messages that shareholders are looking for be assured that Dell is willing to do whatever it takes to obtain growth,” Levy said.
David Marks, consulting director of IDC Canada Ltd. agrees with the AMD switch-over and the Google partnership.
Both moves give consumers a broader choice and “provide another method of acquiring expertise from the outside.”
“Anytime there is an increase in partnerships, customers will tend to take a second look and this could spell more business for Dell,” said Marks.
He said Dell’s recently opened factory in Xiamen, China and its proposed plant in India are means of taking advantage of lower production costs in Asia as well as tapping into its growing markets.
On reports about slumping profit margins, Sheskey said Dell’s revenues continue to remain strong.
“Our revenues are very strong; they went up 14 per cent last year compared to the industry’s 10 per cent growth for the same period. Our profit is still three times that of the industry.”
But competitors are catching up. “Although still an advantage, Dell’s direct sales model is no longer unique. To remain competitive, they have to cut cost, “said Marks.
Yates said Dell is losing profits in the face of increasing price competition from the likes of Hewlett-Packard.
“Their current problems with Wall Street have to do with shrinking profit margins. They’re making less profit on their machines.”
Yates said moves like switching servers to AMD chips should be carried out to Dell’s broader PC product range to make a real difference.
Dell needs to concentrate on delivering more innovative products to consumers and at the same time not be diverted into other areas such as IT services or high-end gaming, said Yates. “They really have to shift their focus from offering low-cost white boxes.”