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2/2/2007
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Michael Dell Attempts To Pick Up Where He Left Off

Dell's founder returns to the CEO office with optimism but a long to-do list

Michael Dell is returning to the helm of a much different company than the one he left in Kevin Rollins' hands 2-1/2 years ago.

When Dell stepped down as CEO in 2004, the company had a 12 percentage point lead over Hewlett-Packard in the U.S. PC market. But the build-to-order computer maker has stumbled through an embarrassing battery recall and declining customer service ratings, and its accounting practices have come under federal scrutiny. HP, meanwhile, has come on strong, overtaking Dell as the No. 1 PC maker. Dell last week warned that its fourth-quarter results will come in below analysts' revenue and earnings estimates.


The best is yet to come

The "best" is yet to come

Photo by Jack Atley/Bloomberg News/Landov
Dell, who a few months ago stood firm behind Rollins, has seen enough. The beleaguered Rollins resigned last week, and Dell is back in charge. "This might bring some thunder back to the company, and they need that," says Art Hogan, an analyst for with Jefferies & Co. "He needs to shake things up."

As recently as September, Dell said the company had begun a metamorphosis--opportunistically called Dell 2.0--and took some of the blame for the company's miscues. And while some investors had called for Rollins' removal, there was no sign at the beginning of last week that Rollins was about to go. On Jan. 29, he shared a stage in New York with Bill Gates and Steve Ballmer at Microsoft's launch of the consumer version of the Windows Vista operating system. "Rollins was doing a good job, but the environment turned sour on him very quickly," says IDC analyst Richard Shim.

What went wrong? HP and other computer makers mimicked Dell's supply chain efficiency, and Dell didn't spend enough on R&D to drive product innovation. A price war that was great for CIOs and consumers put a squeeze on Dell's profits. During this ruckus, Rollins caught flak for quipping that the iPod was just a fad, while launching what would be an unsuccessful foray into the music download business.

The company also remained loyal to Intel chips too long, as Advanced Micro Devices forged ahead in microprocessor design, reduced power consumption, and lower prices. Dell has since begun using AMD chips, but only after losing PC and server sales.

DO MORE, DO BETTER

Additional course corrections are necessary, though it's unclear where Michael Dell will begin. Illuminata analyst Jonathan Eunice argues the company must do a better job of selling complicated technologies--blade servers and integrated systems--in addition to LCD monitors and rack-based servers that it does well. Dell might also want to beef up the company's systems management options. "That's important for IT managers who have to wrangle 1,000, 10,000, or even 100,000 computers," Eunice says. "Then, even if the product is identical, Dell is going to get a leg up."

Other must-dos include expanding sales channels and improving customer service. While the company already has moved some call centers from offshore locations back to the United States, Dell must do more to improve its reputation for poor customer service. "It's going to be a long-haul kind of thing," says Eunice.

In a written statement, Dell last week said his company has "tremendous opportunities" ahead, including plans to provide "the best" customer experience and value and a strong global services business. "I am enthusiastic about Dell 2.0," he said. Now, if only more customers would share that enthusiasm.

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