If You Buy Dell, You Get A Dude And A Dud
If You Buy Dell, You Get A Dude And A Dud
It's been two years since Dell was supposed to shape up. Innovation happens elsewhere.
By Joan Lappin
Copyright by Forbes.com
02.23.10, 11:25 AM EST
http://mobile.forbes.com/device/article.php?CALL_URL=http://www.forbes.com/2010/02/23/dell-computer-apple-markets-steve-jobs.html?partner=yahootix
Almost two years ago I attended the Dell analyst meeting in Austin to hear about the rollout of the new management team and the new business plan Michael Dell was embracing upon his return to the company. After a day of presentations when all the new top folks were assembled on the dais, what was shockingly clear was that Mr. Dell had assembled yet another team of men.
Women have risen to the top of lots of other tech companies over the last 20 years, but never at Dell ( DELL - news - people ), and there was no departure from that in the new group. I raised my hand and observed that it was quite clear that the opposite of the successful ad campaign "Dude, you're getting a Dell" was true: "If you bought Dell you were getting a dude!"
Now it appears I was wrong. If you buy Dell you are getting a dud.
Eight quarters have elapsed since the supposed turnaround was undertaken. Still there is little evidence of an upward turn at Dell. Two years is an eternity in the world of tech. Each quarter the emphasis has changed on what went wrong. In some quarters the top honchos decided that it was best to reach for sales. Then when margins collapsed they altered their view.
They thought it was best to reduce the number of product lines, simplify the choices for customers, emphasize margins and drive less for sales. They have moved manufacturing out of the U.S. and also trimmed jobs outside and inside its borders. At various times international business was going to be the lead dog. At other times focus was on reaching into retail channels to better compete for the U. S. consumer where Dell was not top dog.
Michael Dell is no Steve Jobs. Michael Dell only ever did one truly clever thing: He decided to assemble computers in his dorm room and sell them directly to his very local customers without a middleman. He rode that direct-to-you formula to great success and mammoth wealth.
Dell's results for its most recent quarter were another repeat of the last eight quarters. Michael Dell admitted that sales exceeded their expectations and they had to "scramble to get parts" to assemble during the quarter. That is probably the essence of why margins weren't up to snuff and why investors are punishing the stock in the aftermath of the news.
It is very important to understand that every participant in the computer industry is suffering the same market dynamics. Prices keep dropping--this year by about 23% from a year ago. Consumers always want twice the speed, twice the memory, twice the features and at half the price. If prices drop by 25%, then you have to sell 25% more machines just to keep your sales flat. It's tough to grow in that environment. After a while you become the hamster running on the treadmill.
Dell understands the problem. Selling boxes is hurtling toward a zero-sum game. For sure there are still many people in the world who have never made a phone call or used a computer, but as the BRIC countries and others are brought into the modern world, the best chance for growth nowadays is outside the developed countries or to offer ongoing services. That is why Hewlett Packard ( HPQ - news - people ) and Dell have made acquisitions to take them into the business of providing turnkey services or cloud computing where they maintain your computer functions in another location and manage your data far more efficiently than you can do it for yourself. At least that's the sale pitch.
Sales to the government sector in the U.S. were also the subject of a question. One caller asked if the budget problems of many states and municipalities posed a risk to Dell's 27% of revenues from the public sector. Michael Dell replied that in all their years in business that number had never declined, but conceded it was a potential risk ahead.
I've been patiently waiting and hoping Dell would get its act together. It keeps buying sales by expanding its product line through acquisitions. Even that can't surmount the lack of innovation that leads to exciting growth. There is nothing special going on at this company, and at this point we must deem it a dud. It's hard to imagine that Dell's current testosterone-heavy management group--or any other group--will ever be able to change that. If the economy improves, Dell will participate in a cyclical upturn, but beyond that it will never be a leader.
I pride myself in being a patient long-term investor for our clients. Patience is often a virtue, but not when years go by with little improvement.
It's been two years since Dell was supposed to shape up. Innovation happens elsewhere.
By Joan Lappin
Copyright by Forbes.com
02.23.10, 11:25 AM EST
http://mobile.forbes.com/device/article.php?CALL_URL=http://www.forbes.com/2010/02/23/dell-computer-apple-markets-steve-jobs.html?partner=yahootix
Almost two years ago I attended the Dell analyst meeting in Austin to hear about the rollout of the new management team and the new business plan Michael Dell was embracing upon his return to the company. After a day of presentations when all the new top folks were assembled on the dais, what was shockingly clear was that Mr. Dell had assembled yet another team of men.
Women have risen to the top of lots of other tech companies over the last 20 years, but never at Dell ( DELL - news - people ), and there was no departure from that in the new group. I raised my hand and observed that it was quite clear that the opposite of the successful ad campaign "Dude, you're getting a Dell" was true: "If you bought Dell you were getting a dude!"
Now it appears I was wrong. If you buy Dell you are getting a dud.
Eight quarters have elapsed since the supposed turnaround was undertaken. Still there is little evidence of an upward turn at Dell. Two years is an eternity in the world of tech. Each quarter the emphasis has changed on what went wrong. In some quarters the top honchos decided that it was best to reach for sales. Then when margins collapsed they altered their view.
They thought it was best to reduce the number of product lines, simplify the choices for customers, emphasize margins and drive less for sales. They have moved manufacturing out of the U.S. and also trimmed jobs outside and inside its borders. At various times international business was going to be the lead dog. At other times focus was on reaching into retail channels to better compete for the U. S. consumer where Dell was not top dog.
Michael Dell is no Steve Jobs. Michael Dell only ever did one truly clever thing: He decided to assemble computers in his dorm room and sell them directly to his very local customers without a middleman. He rode that direct-to-you formula to great success and mammoth wealth.
Dell's results for its most recent quarter were another repeat of the last eight quarters. Michael Dell admitted that sales exceeded their expectations and they had to "scramble to get parts" to assemble during the quarter. That is probably the essence of why margins weren't up to snuff and why investors are punishing the stock in the aftermath of the news.
It is very important to understand that every participant in the computer industry is suffering the same market dynamics. Prices keep dropping--this year by about 23% from a year ago. Consumers always want twice the speed, twice the memory, twice the features and at half the price. If prices drop by 25%, then you have to sell 25% more machines just to keep your sales flat. It's tough to grow in that environment. After a while you become the hamster running on the treadmill.
Dell understands the problem. Selling boxes is hurtling toward a zero-sum game. For sure there are still many people in the world who have never made a phone call or used a computer, but as the BRIC countries and others are brought into the modern world, the best chance for growth nowadays is outside the developed countries or to offer ongoing services. That is why Hewlett Packard ( HPQ - news - people ) and Dell have made acquisitions to take them into the business of providing turnkey services or cloud computing where they maintain your computer functions in another location and manage your data far more efficiently than you can do it for yourself. At least that's the sale pitch.
Sales to the government sector in the U.S. were also the subject of a question. One caller asked if the budget problems of many states and municipalities posed a risk to Dell's 27% of revenues from the public sector. Michael Dell replied that in all their years in business that number had never declined, but conceded it was a potential risk ahead.
I've been patiently waiting and hoping Dell would get its act together. It keeps buying sales by expanding its product line through acquisitions. Even that can't surmount the lack of innovation that leads to exciting growth. There is nothing special going on at this company, and at this point we must deem it a dud. It's hard to imagine that Dell's current testosterone-heavy management group--or any other group--will ever be able to change that. If the economy improves, Dell will participate in a cyclical upturn, but beyond that it will never be a leader.
I pride myself in being a patient long-term investor for our clients. Patience is often a virtue, but not when years go by with little improvement.
posted by Carlos T Mock at 12:07 AM
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