Can Dell ever return to its past glory? For a long time Dell was a super-efficient maker and distributor of consumer and corporate PCs and related computer gear. The company was considered to be a world-class leader in logistics, supply chain management and direct-to-consumer distribution. In spite of its excellence, Dell stumbled and badly, - in almost every aspect of its operations - customer service, innovation, product development, financial operations and executive management. The return of Michael Dell to the helm is a welcome sign, but the task that awaits Mr. Dell and his new team is daunting.
Dell lacks reliable financial reporting and the SEC and other investigations into its accounting are on-going. Much of its recent financial reporting can not be relied upon and is likely to be re-stated. Dell lost much of its product momentum and ceded market share leadership in the laptop, desktop and server segments to HP (HPQ). Given the company size, it is a particular challenge to drive revenue growth in a meaningful way and in an absence of a hot (innovative) product like the iPod. Dell's geographic expansion shows progress in emerging markets such as China, Brazil and India, but the growth, while impressive in percentage terms, is modest in absolute numbers. Dell's competition in many of these markets - Lenovo (OTC:LNVGY), is particularly strong in Asia. In its traditional markets in North America and Europe, Dell has had significant customer service challenges that it is slowly beginning to address.
Dell's MGI Index number, a measure of the company's operational efficiency and the effectiveness of management, has been declining for the past 9 quarters.
To reverse the situation, Dell will need to take some bold steps.
Bringing in fresh management talent is a positive step in the right direction.
Potential scenarios for the company
A) Retrench, Refocus, Refine
Dell spends 2007 focused internally. It re-establishes its historical leadership in supply chain optimization, it focuses on improving the customer experience, and it refines its marketing efforts. Through operational improvements, re-invigorated management and employee morale, and greater attention paid to details, the company improves margins and stems the marketshare losses - maybe even regains a point or two of marketshare. The company restates its financials, takes substantial write-offs and resets expectations dramatically lower. The press and analysts buy the "new" Dell story, and at least for a period of time the company regains its shine.
B) Re-write the book and get Acquisitive
Dell takes a page from EMC (EMC) and Oracle (ORCL), and re-writes its strategy book. Organically growing the top line of a $60B company is tough. The new Michael Dell acquires for growth in a big, big way. The company gets the double-double magic back - but with a mostly inorganic strategy.
Potential acquisition paths include
a) Add a new market - Dell acquires Nintendo (OTC:NTDOY) and enters the gaming market
b) Build out enterprise products and services - Dell acquires Sun (SUNW) or EMC and brings more firepower to the war with IBM (IBM) and HP
c) Get serious about software - acquire Symantec (SYMC)
e) Make a potential game-changer that looks to the future - acquire Juniper (JNPR)
f) Enter the mobile handset business - buy Motorola (MOT) and enter the "new PC market of the 21st century" Describing Dell's woes is all too easy. The website and its products are akin to the excitement offered by General Motors. Growth is the real challenge. Dell needs to not only address the obvious problems (lack of financials, customer support, break-down in its supply chain, the drag of being a "Wintel" partner in the beta era of Vista), the company has to learn how to grow acquisitively. Michael Dell has faced seemingly insurmountable challenges in the past, hired new management, and subsequently raised the company's performance.
DELL 1-yr chart
Disclosure: Author has no position in any of the above-mentioned companies.