Dell: No Angles Left? 32 comments
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Dell (DELL) is running out of options.
Once the most successful computer company in the world, Dell has since slipped behind HP in global computer market share.
But this is old news, Michael Dell is back to change things around, right?
Well, he is back. But will he be able to change things around?
Dell’s original business model was a stroke of genius. It was one of the only computer companies to only sell direct. Not only that, they made it very easy for small business to partner with them, making it a dominant player in the small business industry. Additionally, their corporate partnerships division allowed major corporations to benefit from volume purchases while Dell was laughing all the way to the bank.
Dell computers were also once viewed as state-of-the-art, top line computers. Their brand allowed them to put big price tags on a cheap product, cut all the middle men out and have huge profit margins. What happened?
Several things. Most importantly, Michael Dell left the position of CEO and their whole business model changed. Instead of selling direct, they dumped resources into a retail division of the company. This is a space that other computer companies such as Toshiba, HP & Acer have been in for decades. Needless to say, they dumped their money into this division and saw that sales and profit margins were just not hitting their targets.
So what did they do? Lowered prices! That ought to boost sales, right?
Well, sure retail sales got a slight boost, but the damage to the brand is irrevocable, and profit margins suffered significantly. Now instead of a prestigious computer brand that you could only purchase through a partner or online, you have a cheap computer that is competing with the likes of small-timers like Lenovo (LNVGY).
Now Dell is in a tough position. Last year they lost 2.5% of their market share, and in a 25 Billion dollar a year industry, that is a significant loss. Their business model is not as profitable, and competition is getting stiff, especially with an Apple (AAPL) revolution already in progress, things are looking grim for poor old Dell.
Disclosure: Author has does not have any long or short positions in Dell.
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This article has 32 comments:
Steve
magicdiligence.com
It is a much different story when you are the leader, as Dell discovered. As such, Dell recently lost its leadership position to Hewlett-Packard. Investors need to understand how Dell is dealing with these transitions. As PCs have become commoditized, Dell can no longer generate the earnings growth of the past, even with its super-efficient supply-chain management system. Therefore, Dell has not only expanded into a specialty consumer electronics company, but it is moving towards larger computing and storage systems. With extensive outsourcing to Asia, Dell is now able to leverage its huge customer base and offer the high profit margins of service contracts. Finally, Dell was rather unique in that it got into the consumer finance business early on as a way to gain PC market share, rather than as a last ditch effort to add earnings growth from financial transactions.
Michael Dell recently took over the CEO position due to loss of market share by HP. Interestingly, Dell began selling its computers in Wal-Mart and Staples, representing a clear deviation from its original business model. Understand that for so many years, Dell was able to undercut the cost of its competitors because it had a great supply-chain management system. Computers were made to order and shipped out one by one, rather than assembled in bulk and warehoused in store shelves and inventory centers. This enabled Dell to realize tremendous savings because it did not lock up capital for extended periods. Not only could it use the cash for other investment activities, but it was also protected from price declines for computer components since parts were ordered as needed.
So why is Dell now selling to Wal-Mart and Staples? Record energy costs combined with a 75 percent reduction in the average price of a computer over the past 8 years have neutralized the unique advantages of its supply chain management model. Now it’s less costly to keep inventory stocked. As well, it is cheaper to ship computers in bulk rather separately.
If you want to become a great investor and secure spectacular returns, you need to develop the ability to figure out analyses like the one just discussed.
It takes time, practice, and an inquisitive mind, something that apparently Barry Deen (the self-proclaimed Buffett Junior) lacks. But oh he plans to start an asset management firm soon!! Sign me up!! I've always wanted to let a web kid with no professional investment experience, an inflated ego, and ZERO investment aptitude invest my money for me.
Good luck kid. My advise is to let the pros deal with the market. You should stick to making websites. The problem with the Internet is that it somehow makes people feel like they are experts in everything.
Being without a pc for a week when I invest in the stock market Dell cost me hundreds of dollars.
I hope you see to it they do not get away with such shoddy business.
Sincerely, Mary Piper
Now, the rest of the people I know (fast becoming a majority, in fact) have bought Macs, and many of them install XP into Boot Camp or Parallels so they can play the games they have. Many have traded in their bootlegs of Office and use iWork as their daily driver. All of them think iTunes, iPhoto, and iMovie are vastly better than what they used before. A few gripe about having to reboot to play games, but so far nobody has griped about not having to install anti-virus, anti-spyware, anti-Trojan, anti-everything... well, you get the picture.
Me? I just bought my first Apple - a nice iMac that I am getting familiar with this week, and so far I love it! I have called Apple twice for help (nice folks) and gone into the store once for assistance. I am going to get the $99 all-you-can-eat training next time I go in. My year-old Dell is getting donated to a local school.
I bought a Dell in '98, and while not quite a disaster, I certainly would NEVER recommend anyone do so. Tech support was about the worst - long cue times (over an hour most times) to speak to someone who was difficult to understand, and who would generally be unable to help. I always questioned how publications would give good marks toDell's tech support.
Add to this Dell's policy of NOT supporting their computers once the OS was upgraded (has this policy changed?). Within a year of my purchase, the hard drive died and it took THREE weeks for a replacement. Contrast this with the generic white box I bought at a computer swap meet for $450 in 2001 that NEVER had a problem and where I could walk in to the store with any issues.
Contrast that even further with the Macbook Pro & IMac's we now have - a more robust OS, simple to network, great ITunes integration with Airport Express to my stereo. Add to this truly outstanding phone support, not to mention the Genius Bars, and is it any wonder people are looking at other options.
I have no sympathy for Michael Dell or the company..
But al that has changed. What was once .50 per MB of HD space is now .50 per GB. $50.00 per MB of RAM is now $50.00 per GB. 32MB of video RAM is all most consumers will ever need. Processor speed has stop increasing 20% every 3 months. Speed is no longer an issue. It's heat and power consumption. The Dell model doesn't work anymore because the most expensive conponet in building a PC is now the labor amd shipping. It now takes 3 months or more for a PC to devalue to the point of the cost to build it. No one needs any more HD space than what a PC ready comes with. and the retail shop can max out the RAM for $50.00 if needed. There is no longer an advanage to a build to order model in hopes of the conponets getting cheaper a month later. It's now much for profitable to order your conponets in larger quanitoes to get the pricing. The Dell model is broken and can no longer be fixed. Unless they discover a source of really cheap labor than the other venders haven't yet found out about.
M. Dell should follow his own advice and break up the company and return the money to it's shareholders. Either that or instead of buying back Dell shares, he should be buying AAPL shares. A much better return of investment
As for Apple, I am personally disgusted by their marketing ads and would never buy one for that reason. Apple is like Starbucks, both cater to wannabes who attach coolness to a product. If that works for you fine, but it certainly does not work for me. I am a leader not a follower.
I had an Apple IIc and a Macontosh many years ago but at that time they HD broke down so many times as they were cheaply made. Thus, Apple lost my support as a customer forever. The latest ad campaign by Apple makes my stomach turn even more.."buy our computers because they don't have the problems Windows has (a lie) and you will be cool if you do."
In my opinion, consumers should purchase the least affordable computers they can find for the features they want because computers are just commodities now. The only reason I ever bought a Dell was for the service warranty, which they failed to support. I feel worse for elderly people like the women above. The elderly are clueless about computers, yet Dell expects them to talk on the phone to some Indian who instructs them to open up their computer and check for things, despite teh fact they purchased a warranty. It's nothing short of fraud and I hope all state Attorneys General file suit.
What Steve Jobbs does better than anyone is marketing. He is a marketing genuis no doubt. It appears as if he has finally found a nitch for Apple; a niche that Microsoft missed. In conclusion, it looks like Apple has finally arrived as a legitamate company but I certainly would not be buying it here because you had better believe it has some big problems down the road. As for Dell, keep an eye on how much and how often he sells his stock..not options exercise but stock, as he still owns a large amount. If he starts to bail, you can bet that Dell will be pulverized. All that aside, I wouldn't be buying Dell unless it dropped below $14, and even en only for an intermediate-term trade based on undervaluation.
The least affordable? Why? Some leader you are! Don't look behind you; there is no one there.
-some expert!
Add to this the fact that Dell was never about product innovation (it's R&D budget is peanuts compared to HP or Apple). What we have here is a company that only competes on price and now they have trouble doing it. In trying to bring down costs they degraded the quality of their products and support, but they are still in denial.
"...and I have determined that Steve Jobbs is useless as a CEO. if you examine the historical stock price chart, this confirms my claim..'
Um, you're joking right? I suppose there's nothing wrong with having an irrational bias with little thought behind it, but you're really taking it some pretty wild extremes.
"Michael Dell grew his company to be one of the world’s greatest"
Apart from creating an incredibly astute business model, just how was this "one of the world's greatest"? Did it innovate? Did it create any new technology? Any new products that didn't exist before?
No. Yet you call Steve Jobs "useless"...
The only difference between you and the Apple partisans you denigrate is the flavor of Kool-Aid you drink...
The only problem Apple is going to have down the road is making enough of their produscts ro meet demand.
>>As for Dell, keep an eye on how much and how often he sells his stock..not options exercise but stock, as he still owns a large amount. If he starts to bail, you can bet that Dell will be pulverized. All that aside, I wouldn't be buying Dell unless it dropped below $14, and even en only for an intermediate-term trade based on undervaluation.<<...
The SEC has a name for this. It's called "insiders trading". Ask Martha Stewart about how that works. If you think for a second that M. Dell can unload a boat load of his stocks before his companyl takes a huge downturn, then you are clueless in the world of investing.
Just what are you an expert on?
That goes for the ENTIRE Microsoft Windows partnership universe, not just Dell.
And then there was a company called Apple...quite, quite different.
Does Dell have a totally separate tier of tech support for their corporate (vs consumer) customers? Perhaps even domestic-based?
I just find it hard to imagine a Fortune 500 company having the patience to deal with the tech support issues that the consumer division seems to have.
Yes, Jobs has been a terrible CEO in the past and the inconsistent earnings proves that. His terrible decisions to resist Windows ostrasized his products. This was responsible for the tiny market Apple was stuck with for many years. Only his digital music strategy leveraging the iPod has saved him. Note that I did give him credit where credit is due - he is a marketing genius. Along with seizing digital commications and music opportunities, he has shown an impressive performance as a CEO as of late, but still his tenure at this level of success is still quite short. He still has much to prove.
As for Michael Dell, apparently you do not read too well. He created the premier supply-chain management model, which many others have attempted to mimic, including HP and IBM. Great companies, even technology-based are not always run by creating innovative products. At the end of the day, all that matter are revenues and profits. And in Dell's case, he revolutionized SCM which led to the company's tremendous growth and success. In fact, as a CEO I would have to score Michael Dell higher than Jobs since Dell created something that was not a fad. His SCM model turned the business world upside down. As for Jobs, he will need to continue his fads to repeat previous success.
To peter021...I cannot help you fail to realize what is happening with computers. If you chose to be an irational consumer then so be it. But I hope you enjoy paying a premium for the latest computer only to watch the price of better systems decline by 50% over the next 3 years. Apparently you have no idea what is going on in the components markets. I paid less than $400 for my Acer laptop 8 months ago. It has Vista premium (unfortunately), 1 GIG RAM, and 40 GIGs HD, as well as many other features (bluetooth, etc.). In 3 years it will be useless to me and I will buy another. In 3 years the laptop you bought for $1000 or $2000 will also be useless. Who will have won? Me and the company that you bought your computer from.
To dlw..you are clearly an idiot. I did not botehr to state the different SEC filings used by insiders because I did not want to cloud the minds of kids like you. And if you think that a CEO is unable to gradually sell off large blocks of shares of company stock without the share price staying afloat then you need to examine the case of Bill Gates over the past decade.
It is funny to see how people become irrational when they own a stock. Sadly, the irrational nature of investors often leads to their demise. Until those of you with ill-thought comments have spent real professional experience on Wall Street and have served as an investment strategist, you might be better off learning rather than proving how little you know.
The great thing about Seeking Alpha is that it really shows how much dumb money there is out there.
Sorry, but you clearly don't have a very good knowledge of the subject. You'd rate Dell higher than Jobs? You realize that Apple is worth four times as much as Dell now, right? Dismissing Apple's successes as "fads" is typical of an Apple detractor. The iPod was introduced in 2001. Can you name me some other "fads" that lasted over seven years? You miss the real point, anyway. Apple's pc sales are growing at 3-4 times the rate of Windows pc makers. If you really had been following the company for any length of time, you'd know that, and you'd know that Macs are the bread and butter of AAPL's earnings. And get this - they actually get to make a healthy profit on the machines they sell, imagine that! Market share is nice, but as Apple is demonstrating, it's much nicer to have products that there simply is no competition for.
Upon returning to Apple his first action was to correct that mistake by bringing MS Office to the Mac. Later he changed over to Intel chips, allowing its users to load Microsoft Windows as an option if they needed. Actually his decision to resist windows now gives them an edge since they don't depend entirely on Microsoft's OS as all other PC vendors do.
"Great companies, even technology-based are not always run by creating innovative products. At the end of the day, all that matter are revenues and profits. And in Dell's case, he revolutionized SCM which led to the company's tremendous growth and success."
Ok so now that his "SCM revolution" is not working anymore what will he do? Yes at the end of the day profits are what matters which is why Apple's market cap is 3.7 times Dell's.
"In fact, as a CEO I would have to score Michael Dell higher than Jobs since Dell created something that was not a fad."
The direct model is not working anymore, it's time is up. That is what a fad is, right --it was in now it's out. Steve Jobs is a true visionary that doesn't follow the market like Dell -- he creates his market.
<Yes, Jobs has been a terrible CEO in the past and the inconsistent earnings proves that. His terrible decisions to resist Windows ostrasized his products. This was responsible for the tiny market Apple was stuck with for many year>
get a life. steve jobs made such bad decisions that the value of apple is greater than hewlett and close to the value of dell & hewlett combined. jobs never made his own chips and fyi, i have a
128 K mac in the garage that still works, just a tad slow.
and finally, the proof of the quality of the business is cash in the bank. apple has 19+ billion with zero debt. more than most companies in the usa and that includes hewlett and dell combined and if you take off msft debt from cash. it's pretty close.
don't buy anything for your wife from victoria's secret because you don't like their advertising. a wonderful rationale for making a decision. similar to your disdain for apple.
Do you actually read what you post? Or do you just put your head up your ass and pull out what's there?
It was you, in a previous post, that stated that you can "predict" a down turn in Dell share price by monitoring how many shares M. Dell sells. Obviously if M.Dell sells 1 million shares every quarter (for the past 5 years) on pre-arrange sales, it will not affect the stock price. Nor will it tell you anything about Dell future stock price. But you stated that if M. Dell were to all of sudden sell, say, 5 million shares in a quarter, that you can use this info to "predict" a huge drop in Dell stock price. I just pointed out that this will not be the case because M. Dell would be accused of "insiders trading" if that was the reason behind the sale. I'm not saying that M. Dell can't all of a sudden sell 5 million shares in a quarter. He may had already pre-arranged the sale to get cash for a new mansion in Texas. But I am saying that you are an idiot for even thinking that you can "predict" a drop in Dell share price by monitoring how many shares M. Dell sells.
And I won't even go into how the stock sales by ececutives aren't revealed to the public until the release of the SEC filing. Which will probablly be after any reason for a price drop. Unless of course you got "inside" information and knew about the sales before the SEC released the filing to the public. In which case you would be charged with "insiders trading".
Any good invester knows that there are thousands of good reasons why executives sells their stock in their company, And none of them has anything to do with a future drop in stock price. However, there;s only one good reason for executives to buy stocks in their company. That is that they think the stock price will go up in the future.
After reading several more of your post I now know what you're an expert in. You're a "Real Expert" in NOTHING.
dlw03: "Hi. I. want. to. be. a. big. time. in-ves-tor. so. I. will. sit. here. and. argue. trivia. while. missing. the. big. picture. because. I. really. have. no. money. to. invest. other. than. what. mom. gives. me. in. allowance. I. am. too. stupid. to. latch. onto. wisdom. I. like. to. argue. senselessly. like. all. other. 12. year. old. kids."
Investment professionals don't waste time with morons. Consider yourself lucky I wasted my time abusing you. But now you have been dismissed kid. When you become the top 1% of Wall Street minds come back and see me. I'll be glad to talk to those in my club. Somehow I can't see me dealing with you though. I doubt you could even pass the Series 7.
By inconsistant, you do mean that it never stays that same and keeps going up. Right? You do know that Jobs was not CEO of Apple from 1985 to 1997. Right? Jobs was CEO of Pixar and NeXT during this time. And what did NeXT market? OpenStep. An OS for 486 architecture. OpenStep led to Rhapsody. Which led to OSX. Which is why Apple didn't have any trouble converting OSX from an IBM (not Apple) PPC chip to an Intel 486 chip.
>> His terrible decisions to resist Windows ostrasized his products. This was responsible for the tiny market Apple was stuck with for many year<<
Just think for once. If Apple had gone with Windows back in the 80s' they would be one of the dozens of computer companies that were put out of business by Dell. Companies like Packard Bell, Compaq, Bell and Howell, ATT, Xerox, Gateway and IBM (they only sell laptops now) are just some of the big companies. There were dozens of smaller mail order companies that all disappeared in Dells' wake. Apple decision to stick with their own OS was the reason why they are still here today. Dell could not take away Apples' niche market. As small as it was, it was big enough for Apple to survive Dell. The only other company to survive is HP. And they had to buy out Compaq to do it.
Apple still don't do Windows. Just because Window can run on a Mac doesn't mean the Jobs wil ever sell a Mac with Windows installed. The only reason Windows run on a Mac is becasue Apple (Jobs) switchednt to an Intel 486 chip. And the only reason Jobs switched was because he needed a chip that could run in both his destop and laptop computers. Jobs likes to keep things simple. If you look back, Jobs likes to use the same G3, G4 or G5 chip in both desktop and laptop. He didn't want to use some cripple mobile version of the chip in his laptops. But IBM ran into trouble in making a faster G5 chips that can run in a laptops. So Jobs went with the low-power consumption Intel Core-Duo. This was the only reason why Jobs switched to Intel. Being able to run Windows is just something he couldn't do anything about. Don't be surprise if the next version of OSX can run Windows programs without Windows being installed. It's been rumoured for some time now.
Dells model is to find a wau to "make it cheaper, not better" and people will buy your product. Apple on the other hand model is to find a way to build it better and people will happily pay for it. Well, Dell got off to a great start and got a big early lead. But unfortunately for M. Dell, no one told him that the race is a marathon not a sprint. So Dell is now back there competing with Lenovo and Acer to see who can make the most money selling cheap PCs' to people that want to buy the "least affordable" PC they can afford. Meanwhile Apple is creating new markets by selling innovative products that people are willing to pay for. There is no bragging rights in running the fastest first mile of a marathon if you can't finish the race.
"To User 200631.. You are obviously some kid who..."
It's good to know your knuckleheaded powers of observation are not only limited to financial matters... Not that it's your business, but I'm in my 50s...
Listen pal, you want to offer your opinion as the gospel, fine by me. Just be prepared to back them up with some basic facts - something most posters here have clearly shown that you're unable to do.
Investment professionals don't waste time with morons. Consider yourself lucky I wasted my time abusing you. But now you have been dismissed kid. When you become the top 1% of Wall Street minds come back and see me. I'll be glad to talk to those in my club. Somehow I can't see me dealing with you though. I doubt you could even pass the Series 7.<<
Is this all you got? This is like the villian tossing his gun at Superman after running out of bullets. After showing how idiotic your investment stragedy was, this is all you can come up with to defend your position?
A word of advice. The next time you show up for a gunfight. Show up with more than a dull knife.