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

Apple (AAPL) got hit with a pair of downgrades Monday as analysts see a weaker consumer taking a big bite out of the computer-maker’s growth rate.

RBC and Morgan Stanley analysts slapped Apple with neutral ratings, down from buy, on concerns that the slumping economy will put a chill on sales of Mac notebooks and desktop computers.

Citing a IQ/Changewave survey, RBC noted that 40% of consumers questioned said they “plan on spending less on electronics in the next 90 days,” RBC analyst Mike Abramsky wrote in the note. This is the weakest outlook ever measured in these surveys, Abramsky wrote.

Apple shares fell 16% in morning trading Monday in the wake of the reports, as investors get a sobering view of how popular consumer devices can lose momentum in a faltering economy.

The growing credit crisis has helped deflate consumer confidence and force delays in purchases of items like new computers and flat-screen TVs. The problem for Apple, writes Kathryn Huberty in a downgrade of Apple to neutral Monday, is that not only is PC sales growth slowing but the one area shrinking less is the under-$1,000 price range where Apple is absent.

Add the slowdown in PC sales to the higher costs of iPhone production, and Huberty says there will be a dramatic drop in Apple’s profit growth. Huberty cut her Apple earnings growth projection for the year to 6%, well below the 9% analysts’ consensus average.

Apple is not recession proof, RBC’s Abramsky writes.

Not surprisingly, investors have taken flight from stocks in some of the stronger players as the market jitters spread across nearly all sectors. Apple shares are down 35% and smartphone rival Research in Motion (RIMM) is down 47% in the past month.

RIM’s disappointing outlook Thursday confirmed that the once hot smartphone segment is cooling just as the larger mobile phone market grinds into slow gear, not just in the U.S., but globally as Nokia (NOK) recently pointed out.

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 Michal Lev-Ram

A flurry of new state laws making it illegal for people to drive while holding a cell phone is expected to be a bonanza for Bluetooth, a wireless technology that lets devices communicate with each other.

Connecticut, New Jersey and New York are among those states that have already enacted laws requiring drivers to use a headset when talking on the phone. Similar laws take effect in California and Washington on July 1 while other states are considering such legislation.

That’s why Bluetooth gadget makers, including Plantronics (PLT) and Jabra, and retailers like Radio Shack (RSH) and Amazon.com (AMZN) are betting that headsets will someday become as ubiquitous as sunglasses.

Mike Faith, chief executive of online retailer Headsets.com, says past hands-free laws have led to a rise in sales. “[Sales] have spiked in the past, with the three weeks around any law change being when activity dramatically goes up,” he says. “End of June through July our phones are going to be ringing off the hook.” Faith, who says his company sells 600 to 700 headsets per day, saw sales surge 35 percent to 45 percent on average in states with new hands-free laws.

Bluetooth gadgets first came on the scene in 2000. Back then the bulky headsets were expensive, could connect to few phones and made you look like Lieutenant Uhura opening hailing frequencies.  Today, headsets sport stylish designs and over 60% of the phones sold in the United States come with built-in Bluetooth.  Headsets now sell for anywhere from $25 to several hundred dollars.

Analysts are bullish on the future of Bluetooth headsets: A recent study from ABI Research projects that 2.4 billion Bluetooth-enabled devices will be shipped worldwide by 2013. About a quarter of those will be wireless headsets.

To lure customers, Headsets.com is promising a free cell phone headset to anyone in California or Washington who receives a ticket for using their phone while driving – provided they send the company a copy of their traffic citation.

Plantronics, one of the largest manufacturers of Bluetooth handsets, has also launched a marketing campaign around hands-free laws in California and Washington. Clay Hausmann, the company’s VP of corporate marketing, says it’s created a website designed to educate people about the upcoming legislation and is collaborating with retailers like Wal-Mart (WMT) to promote headsets. California in particular is an attractive market for Plantronics.

“It’s certainly the largest market where we’ve seen the law go into effect,” says Hausmann. “Especially if you factor in the commute-heavy cities and areas of California, plus the fact it’s also probably the most tech-savvy state.”

BlueAnt Wireless, a headset manufacturer based in Australia, is also hoping to capitalize on the upcoming legislation by launching two new Bluetooth headsets just a few weeks before the latest hands-free cell phones laws take effect.

By Michal Lev-Ram

Couch potatoes, listen up: If you’re still using an analog TV, you might find static instead of “American Idol” on your screen come Feb. 18, 2009. That’s when the Federal Communications Commission plans to end a half-century of analog broadcasting.

This is the final step in switching to digital television broadcasting, which takes up less bandwidth and allows for high-definition pictures. With the government’s auction of the old analog TV spectrum now completed — companies like Verizon Wireless (VZ) and AT&T (T) bid billions of dollars those airwaves, which are well-suited for mobile broadband — attention is focusing on the 11.4 million U.S. households that Nielsen estimates are not ready for the big switch to digital television.

The only way consumers can keep their old televisions is by paying for cable or satellite service or buying a converter box, which receives and converts digital signals into a format that analog TVs can display. To make sure these analog-only households aren’t stuck without programming next February, the government has launched a coupon program to make the transition to digital smoother. Qualifying families can apply for up to two, $40 coupons to be used toward purchasing converter boxes.

Todd Sedmak, a spokesman for the National Telecommunications and Information Administration, the government group overseeing the coupons program, says companies in the broadcasting, cable and consumer electronics industries have committed to spending over $1 billion to educate consumers about the upcoming change.

“Many resources are being tapped to inform the public,” says Sedmak, who adds that more than 4.5 million households have already requested about 8.5 million coupons. To date though, the government has only mailed about 2 million coupons.

Critics say despite the efforts to educate, getting the word out to over 11 million people — many of them living in rural locations — will be difficult. They also argue that converter boxes are not readily available and that that the coupons are good for only three months. Best Buy (BBY) carries only one model, retailing for $60, that is covered by the coupon.

What’s more, the upcoming switch could affect some groups more than others. According to a recent Nielsen study, adults over 55 are better prepared than younger households, while Hispanics and African-American households will be more affected than whites and Asians.

Eric Rossi, head of Nielsen’s digital transition preparedness team, said in a recent report: “The change to all-digital broadcasting is the most significant change in the history of television.”