Dell: Everyone Becomes a Consultant

Wednesday closes a chapter in the Dell (DELL) recovery story: Founder and CEO Michael Dell hired Mike Cannon, formerly chief executive of contract electronics manufacturer Solectron (sold to Flextronics (FLEX) last year), in February of 2007 to fill a new post of President of Global Operations. Today, Cannon is departing, with Dell shares trading at $10.20, less than half what they were on Valentine’s Day, 2007, when Cannon’s appointment was announced.

More than anything, the shake-up promises to leave Dell with lots of consultants:

Cannon’s to be replaced by Jeff Clarke, who has been head of business client products, but Cannon will remain on as a consultant. At the same time, the company’s head of marketing, Mark Jarvis, is leaving, to be replaced by Erin Nelson, who has been running marketing for Dell in Europe. Jarvis is to also remain on retainer.

Cannon’s departure is part of a reorganization of its commercial PC operations (those that cater to business versus consumers) announced by Dell, with the company shifting from a division that was based around geographic regions, to a new structure built upon three customer categories: large enterprise, public sector, and small and medium businesses.

R.W. Baird analyst Jayson Noland, who has a “Neutral” rating on shares of Dell, is concerned about what Cannon’s departure means for Dell’s cost-cutting initiatives: “We believe Cannon was charged with the bulk of the $3 billion cost savings initiative outlined at Dell’s April analyst day,” he writes in a report today. “Therefore, we view Cannon’s departure as a near-term red flag given that gross margin improvements are key to improving operating leverage at Dell.” Noland observes that Dell today reiterated its $3 billion cost savings goal.

Noland says the restructuring of commercial PCs is a good move, that it will help Dell service large corporate customers.

Others argue the product is lacking. Bloomberg quotes Roger Kay, president of researcher Endpoint Technologies Associates Inc. in Wayland, Massachusetts, as saying, “This restructuring is in response to mediocre results […] It is not enough. They do need to work on their product portfolio and their supply chain and distribution.”

Dow Jones Newswires quotes a Barclays Capital Equity Research note, which argues that “Given Cannon was leading the cost effort, we believe investors need more specifics from the company around where the savings are coming from, how much could fall to the bottom line, and what metrics we can use to measure the company’s success.”

Comments

[Ramki Subra:]

I think Dell is going down the toilet. Its trying to sell of its JIT factories to taiwanese outsourcers while wondering what to do. They shoudlve bought SUN in 2002 when that company's stock was in the toilet and it still had technology to hawk. In anycase, things are a bit too late - they need to get a little smaller - lose the macho ambitious crap of double numbers or grow at x% for a while and refocus on delivering better products, innovative range, streamline tech support and get rid of excess paper Directors in their Global company. Become a lean mean company it was of the 2003.

Their outsourcing to India and Philipines must be pared and infact reduced to a point that is essential. With US in severe recession, there are lot of areas like Michigan and Delaware where great english speaking workers are available at a reasonable price.

Jan 04 12:28 PM