Dell Could Use a Mark Hurd

On Thursday, Dell posted its financial results for Q4 and fiscal year 2008 that ended February 1, 2008. Earlier coverage is available here and here. In my last post on Dell, I had said that its turnaround wasn’t going so badly, but that I would like to see a smartphone strategy. A smartphone still isn’t on the horizon. Nevertheless, let us see how it fared this quarter.

Revenue for the quarter grew 10% y-o-y and 2.5% q-o-q to $16 billion while operating income slumped 6% y-o-y and 6.4% q-o-q to $776 million. EPS also declined 3% y-o-y and 9% q-o-q to $0.31 due to a number of charges including $83 million in expenses, or $0.04 a share related to the acquisition of EqualLogic and Everdream and $54 million, or $0.02 a share for business realignment. Its shares slid on the news that it missed Street estimates of $0.36 EPS on revenue of $16.27 billion. On the brighter side, it was the first time in three years that Dell had a double-digit growth in a quarter. It also resumed its share repurchase program spending $4 billion in the quarter to repurchase 179 million shares of common stock.

For the full fiscal year 2008, Dell saw revenue grow 6% to $61.1 billion and operating income grow 12% to $3.4 billion. EPS grew 15% to $1.31 per share.

In the past eight months, Dell has reduced headcount by 3200, by reducing non-front-line heads by 5300 and recruiting 2100 in sales, service, and support. It was supposed to shed 8,800 jobs, and Wall Street isn’t pleased.

However, Dell has systematically diversified out of its once market-leading direct-to-consumer strategy. Apart from strategic partnerships with Best Buy (BBY) in the U.S., Dell has also partnered with Tesco (TSCDF.PK) and Dixon’s Stores [DSGI/LSE] in the U.K. and Carrefour in France. Dell is now in over 10,000 retail stores worldwide, and the retail business is on a $1 billion revenue run-rate with 1 million units sold worldwide. This is a good step forward.

In the quarter, it launched Inspiron 1525 which halved the concept-to-manufacturing cycle time while also saving $70 per unit. Other new products include Dell PowerEdge M-Series blade server solution with 28% better performance per-watt than competitive solutions; Dell EqualLogic PS5000 Series, an iSCSI SAN array to serve as the backbone for data center storage and virtualization; and the new XPS M1530 and Latitude XT, one of the thinnest and lightest 12.1-inch convertible tablets. For SMBs, it launched the Dell AX4-5, an entry-level storage area network [SAN] solution. Dell’s VMWare partnership also looks comprehensive.

Emerging Markets, assessed as a $64 billion opportunity, correctly is a strong focus area. Dell expanded its direct model into the BRIC countries, and revenues were up 36% on a 50% increase in units. These countries represent 8% of total revenues on a $5.1 billion run-rate.

Small Medium Businesses [SMB], pegged as a $100 billion global opportunity, is also a strong focus area through 10,000 global channel partners, and generated $10 billion in revenue.

In Q1 fiscal 2009, Dell expects to spend at least $1 billion to repurchase its shares. It also expects to continue to incur realignment costs. Conservative spending by its customers is also expected to affect its future results. It is currently trading around $20.5 after hitting a 52-week low of $18.87 on January 23. Its market cap is around $46 billion.

Turnarounds, as we know, are difficult business. Things get worse before they get better, as the company works through realigning its headcount, cost-structure, business processes, etc. to fit the contemporary market conditions. At the moment, things are in that “getting worse” phase.

One final question begs to be raised: Does Dell need a turnaround CEO a la Mark Hurd who has done a splendid job at Hewlett-Packard (HPQ)?

click to enlarge

Comments

[deaverb]

Michael Dell has turned Dell around with tough head winds. HP is a unique brand, incredibly well positioned overseas for the dollar value issue. Mark Hurd was exactly what HP needed: someone to promote the HP way, let HP be HP, and sell stuff--"moving iron" as they said at NCR. In a totally good way too!

Dell came from way behind overseas and is making progress; way behind at retail and making quick progress. Give Dell time. As Peter Drucker said, "It is not doing things right; it is doing the right things."
This article says Dell is doing the right things. The article is convincing.

[lmartin]

As DeaverB indicated, Michael has done a wonderful job in many critical areas of the business...with emphasis on really understanding was was needed for retail expansion. He has also really gotten serious about better service...and executed. However, while it is certainly true Dell is doing the right things to get this business going, the results to date leave one wondering about it...remember HP is well entrenched into this business...with 80,000 retail outlets...a BIG lead over Dell, not to mention all the contacts this represents for future business. My 'bottom line' here is that Dell needs to create a DESIRE for their products (not just a color change or something simple) but a real deviation from 'just another computer' to get the public more interested. This could be...uniqueness, features, size, power management, usability, customer service...or many others. Just gotta create that image of...."just gotta get one of those Dell's", for whatever reason. A sale is a sale!