By Scott Moritz

Dell (DELL) is trying unpaid vacations (for starters). 

The No.2 PC maker, already grappling with a massive turnaround strategy, is taking a closer look at expenses and has informed employees of a company-wide cost cutting plan that includes voluntary five-day unpaid leaves for everyone.

According to an internal memo confirmed by a company representative, Dell has frozen its hiring and is considering a range of cost-reduction plans.

In addition to the unpaid furloughs, the company is offering buyouts and cutting some of its contract workers. Dell already completed a 10% staff reduction plan this year that was put in place in May.

Sales, particularly in the company’s PC business, started slumping in September, and Tuesday’s move shows they haven’t bounced back yet. Dell is scheduled to release its October earnings results November 20. Some observers are bracing for a shortfall warning before then, given the slumping demand and overall decline of the economy.

Dell has been particularly vulnerable to the slowdown, having started its shift to a retail sales strategy and away from its famed buyer-direct, made-to-order manufacturing scheme. The company had boosted its staff levels for the transition.

In 2005, Dell had 72,000 employees, and by the end of 2006, the company had about 90,000 workers. Dell had 88,000 employees at the end of last year. “These were mostly white-collar workers brought in to build the business,” says Cowen analyst Lou Miscioscia. “Things have gotten a lot more challenging,” says Miscioscia, who doesn’t see the other PC makers like Hewlett-Packard (HPC) or IBM (IBM) having as bad a problem right now.

The big problem for Dell says UBS analyst Maynard UM, is that “they are unfortunately retooling during the backdrop of a weak end market. “

By Scott Moritz

If Dell’s (DELL) view is right, the tech spending hiatus that started in July isn’t ending anytime soon.

Less than a week after Dell warned that a U.S. slowdown in information technology spending was spreading to Europe and Asia, the No.2 computer maker now says the slump is getting worse.

“We saw some weakness in July, and August is always slow,” Dell CFO Brian Gladden said at a Bank of America investor conference Tuesday. “By the second week in September, we started getting the sense that this isn’t coming back the way we expected it to,” Gladden said. Earlier Tuesday, the company issued a statement that it was “seeing further softening of demand in global end-user demand in the current quarter.”

Dell shares tumbled 10% to a new seven-year low after the company gave its latest grim assessment of the business climate. Outlining the areas of weakness, Gladden pointed out that in the U.S., spending by small and medium-sized businesses is down, and the financial sector, currently in a credit crisis swoon, was a bit challenging. “There’s not a lot of IT spending going on in the financial businesses,” Gladden said.

Overall big business spending, which accounts for about 80% of Dell’s revenue, was “mixed but weaker than we expected in the aggregate,” Gladden said.

Internationally, the U.K. remained a tough environment, Germany had been solid but turned weak in recent weeks and sales in China, which had been slow during the Olympics, had not snapped back as expected, said Gladden.

Tech investors have taken some confidence from the relative good health and solid spending in growing markets outside the U.S. And Wall Street’s deepening woes, while significant, had not had a dramatic effect on the larger IT market. At least not yet.

But as Dell tells it, cash-hoarding corporate customers aren’t exactly ignoring the drama of Lehman Brothers’ bankruptcy protection and AIG’s financing crisis.

Tuesday’s news on the consumer side, where Dell has made efforts to be a bigger player, wasn’t very encouraging either.

Best Buy (BBY), which has been selling Dell computers since last December, blamed its disappointing earnings Tuesday on higher costs and a dip in consumer spending as fuel and food prices rise. “We have some work to do in terms of managing our expenses amid a challenging macro economic environment,” Best Buy CEO Brad Anderson said in a press release.

Dell’s shift to a retail strategy isn’t well-timed. Since founder Michael Dell’s return to the top job in early 2007, Dell has attempted to shift from its online, made-to-order PC-maker approach to more of a retail PC supplier. As part of the effort, the company says it has already eliminated two factories, including one in Austin, Tex.

Dell is looking to cut more costs and has been shopping its manufacturing plants around as part of an attempt to move more of its manufacturing to partners. The company is about one year into a three-year cost-cutting plan and is expected to have reached its target of eliminating 8,900 employees by the end of this quarter.

Asked if the company was considering a quicker move to bring down expenses, Gladden said: “We are taking a fresh look at all those costs given the environment.”

The news comes a day after PC rival Hewlett Packard announced that it would cut 24,600 people, or 7%, of its combined EDS and HP workforce. Nearly half of those workers targeted are in the United States. HP plans to replace some of those workers with employees in other countries as part of its globalization plan.

By Scott Moritz

Tech investors were rattled after Nvidia (NVDA) set off a big alarm.

The graphic chip supplier to the PC industry on Wednesday slashed its second-quarter sales forecast to about $912 million, 17% below analysts’ estimates. It also said it would take a $150 million to $200 million charge to cover replacement costs of defective chips.

The warning sent Nvidia shares down 31% Thursday and added more pressure to the Nasdaq, which fell 2%, and is now down more than 9% in the past month.

But some analysts think investors overreacted by sending tech stocks down on Nvidia’s warning. The company’s problems appear to be specific to Nvidia.

“While the company attributed a portion of the miss to global end market weakness, our checks indicate component demand from other chip companies touching the PC end market is stable,” JPMorgan analyst Shawn Webster wrote in a report Wednesday.

No.2 rival AMD (AMD), which fell 1% Thursday, likely saw solid demand for graphics chips and probably took some of Nvidia’ business in the quarter, analysts says.

Webster downgraded the stock to neutral from buy after concluding that many of Nvidia’s problems are company-specific. He says Nvidia started the quarter with a pile of excess graphics chips. This surplus was compounded by increased competition as rivals took market share and capitalized on a shift among computer makers from separate graphics cards to integrated-graphics chips. Nvidia, which commands 80% of the graphics processor market, mostly sells separate graphics cards.

Nvidia spread the blame for the sharp sales decline on a number of factors, including a replacement of bad chips, a soft economy, product delays and price competition. “There’s a bit of ‘and-the-kitchen-sink’ to this,” says one Wall Street analyst.

“We knew that the July quarter was going to be choppy, but we didn’t expect this magnitude of bad news so early,” Cowen analyst Dan Berenbaum wrote in a note Thursday, referring to the four weeks of business yet to book in Nvidia’s second quarter ending July 31.

Berenbaum says the stock is trading like the company is at death’s door, but he argues that “the near-term difficulties do not mean that Nvidia is in secular decline.”

By Scott Moritz

Heads have started to roll at AMD (AMD), as technology chief Phil Hester resigned with no replacement planned, according to the Wall Street Journal.

The news comes less than a week after the chipmaker announced a 15% sequential sales shortfall and plans to cut 10% of its staff due to weak demand across all its business segments.

AMD did not immediately respond to a request for comment.

Analysts point to a slowing economy and a critical delay of AMD’s quad-core Barcelona chip for the server market as two major reasons for the company’s current woes.

AMD, which has already pulled Hester’s bio from its Web site, called Hester the top executive “responsible for setting the architectural and product strategies and plans for AMD’s microprocessor business.”

The company is in a brutal battle with rival Intel (INTC) and has been on the losing end recently due to misfirings like the Barcelona glitch. AMD follows Intel’s earnings report Tuesday with its full first-quarter report on Thursday.

AMD shares were down a nickel to $6.22 in midday trading Friday.

By Michael V. Copeland

If you want a hint at where innovation in the gadget world is headed, talk to the chip guys. These nuggets of insanely complex silicon that companies like Intel, AMD (AMD), Atheros, Broadcom and Marvell (MRVL) are creating today will end up in the phones, laptops, televisions and mobile video/music/Internet devices of tomorrow.

We all know that Intel is dead-set on making WiMax — wireless access measured in square miles — a reality. When they start shipping WiMax PC cards in laptops is another matter (Intel (INTC) said it’ll be around the middle of the year), but when they do, your laptop might start acting and looking more like the tidy mobile device it should be. Think about a sub-subnotebook machine, always connected to a broadband signal — it might make video calls via VoIP, stream movies, take photos and send them wirelessly back home or to the office. I want one now, but it doesn’t happen without the chipset (and the network infrastructure to go along with it). That’s a ways in the future for most of us, especially in the United States. But the capability is coming soon, and a raft of new gadgets that take advantage of it will follow.

One of the most interesting chip trends I saw last week at the Consumer Electronics Show in Las Vegas was encapsulated in a little device called the Eye-Fi. Here’s a gadget that exists today, but has lots of implications for tomorrow. What the Eye-Fi does is automatically stream photos from your digital camera via your Wi-Fi network to your PC or an online photo service. What the Eye-Fi team has done essentially is wrap a service around a common flash memory card and a low-power Wi-Fi chip from Atheros (ATHR). It’s these lower power Wi-Fi chips that are extremely interesting, when you start thinking about other services they enable.

All the manufacturers in that realm of the chip business are working on prototypes that are as power efficient and powerful as possible. But think about all the things that can happen if you can put Wi-Fi into all sorts of mobile and fixed devices and connect them to either the Internet or a private network. Gadgets get smart and can receive, send and potentially respond to whatever information they are set up to handle.

It could be smarter light switches that turn off and on via an e-mail or text message, or LCD picture frames that stream your e-mail to your bedside and upload a recipe to the kitchen screen every day before dinner. Or maybe some slick mini-display that scrolls updates from your Facebook friends on one side, reads you the news on the other, and does any number of other things that you find important or entertaining.

Who knows? The possibilities are numerous, but it begins with these chips now starting to ship. It also calls into question the future of other wireless standards like Bluetooth and Zigbee. Zigbee, a low-power wireless technology, has never really taken off. Bluetooth has, but combining Bluetooth with Wi-Fi in devices is much more of a headache than engineers would like it to be. Low-power Wi-Fi plays nicely with its full-power brethren and has the potential to sweep both other wireless standards away.

In the Broadcom (BRCM) booth at CES I got a demonstration of a lower power chip now ready to ship that allowed for high-definition video, graphics and audio in such a small package that you can already see all the little video devices/phones it will spawn. One very cool potential application combined that low power HD video chip with a motion control chip that Broadcom builds for the Wii controller and another very popular music device/phone that begins with the letter “i.” Basically, you get a handheld Wii, which, I would bet you’ll be seeing sometime in the near future.