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The Way Business Is Moving

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Issue Date: August 2007

Six months of Michael Dell

August 2007
Rhonda Ascierto

Six months ago last week, Michael Dell reclaimed the reins at the company he founded in 1984. The next six months will help determine whether he has laid the groundwork to orchestrate a turnaround.

For the year's first fiscal quarter under Dell, he had not yet got a grip on the Round Rock, Texas-based company's slipping PC business; revenue grew a scant 3%. In contrast, Hewlett-Packard, which recently snatched the PC market's top spot from Dell, posted a robust 13% revenue boost.
Since then, in a bid to reinvigorate the company's PC lineup against HP, Dell launched a line of colorful Inspiron notebooks, which includes a Bubblegum Pink hue.
In July, it launched a new line of low-cost notebooks and desktops for small businesses with fewer than 25 employees. The new Vostro notebooks sell for as little as $449 while the desktops begin at $319.
It also announced PCs running Linux, which at least gave the impression it was paying attention to customer suggestions on the 'IdeaStorm' customer relations website that launched in February. Last week, the company announced that in addition to two new Linux consumer desktops in Europe, it plans to factory-install Novell's SUSE Linux Enterprise Desktops on its hardware in China.
More new programs and incentives are expected in the coming months.
So far the most significant mark yet of Dell's come-again leadership has been the pushing the company out the channel more so than ever before. In early June, Dell broke from the direct-sales model he was known for and began selling the company's PCs and notebooks through Wal-Mart.
He also has been trialling Dell-branded stores in the company's home state of Texas. Consumers are able to try out products at the stores, but cannot make a purchase - they do not carry inventory.
More stores are expected to open elsewhere in the US later this year.
In the meantime, the company continues to struggle with cost controls.
By next June, Dell said he would slash 10% of jobs, or about 8810 positions, throughout the company. How much the company expects to save as a result is not yet known because it has not yet filed its earnings reports with US regulators because, like so many other tech companies, Dell is being scrutinised by the Securities and Exchange Commission over its accounting. But its SEC probe is a bit different: rather than being related to the dating of stock option grants, Dell's is thought to be related to revenue recognition, specifically around warranties.
Our view
Even if the retail strategy is helping to grow the business, those gains likely are modest and unlikely to be enough to drive an actual turnaround. Rather than helping the bottom line, Dell's Wal-Mart sales are more valuable as a way for the computer maker to gain experience in the retail channel. This is no small or cheap undertaking: retail requires internal, manufacturing and supply-chain adjustments, as well as new marketing considerations.
And the retail market seems to be getting tougher. On Friday, US electronics superstore chain Best Buy announced it would launch a line of business-targeted products on its shelves during the next couple of quarters. This may well counter Dell's SMB moves earlier this year.
To capitalise on the retail opportunity, Dell needs to move quickly.
By year's end, we should have an indication of how well it has executed in retail.
As for the Dell-branded stores, this is a step in the right direction to get consumers excited again about Dell products. Under former CEO Kevin Rollin's leadership, Dell was plagued with product-quality issues, beyond the recall of more than 4 million notebook batteries last year, so appearing to be more transparent to users may help erase these memories. However, the inventory-free store-front model did not work so well for Gateway.
For sure, Dell still has much work ahead of him to get the company back on track. He cannot cut the company's way to growth.
While new programs and initiatives are planned for the second half, the company also faces increasing competitive pressure, notably from Lenovo Group, which is beginning to muscle in on Dell's dominant US territory. And while Apple may have dropped 'computer' from its name, it continues to be the perennial dark horse in the PC game.
Source: Computergram


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