Thursday, February 01, 2007

Rollins out; Michael in again - Where is Dell heading?

Dell's CEO, Kevin Rollins, was fired (they say resigned) last night after the bell. That the founder is returning back to lead a company that he started in his dormitory room here at UT Austin, indicates the crisis that one of the leading PC makers in the world is facing.

Kevin, who pioneered strong growth in Dell in the 1990s was appointed CEO by Michael Dell himself in 2004 when Dell took over the board. But Dell faced serious problems ever since.

* Stock has not been in favor of the investors

- picked up a little in 2006 but consistently declining otherwise

* Drop in market share due to heavy competition
- The primary competition comes from retailers selling PCs and products like Walmart, BestBuy and Circuit City (Remember, Dell sells only directly and hence these retailers are posing a serious threat. What was once its biggest competitive advantage is now turning out to be a threat)
- Foreign PC makers like Lenovo of China and Acer of Taiwan have gained ground in the global market
- HP has resurged to overtake Dell to become the current world's largest PC maker

* Dell's strategy was low pricing that it was able to maintain by selling diretly to customers (thereby removing distributor and retailer profits from the value chain). After successful restructuring, now HP is able to compete on prices as well. So, Dell is losing its competitive advantage

* As we all know very well, Dell had to recall several million defective laptop batteries over the last year

* They missed several earning estimates and sales projections in the past few quarters. They even just announced that they would fall short of forecasts and analyst estimates when they announce their earnings later this week.

* Accounting problems too - the SEC has started looking into its finances since late August last year

* Unstable upper management - CFO announced resignation in December, Senior Vice President announced retirement in a few months

It is relatively clear that Rollins had not been doing that great a job from many facets, and ultimately he failed in his single most important responsibility - meet shareholder expectations.
He has to be ousted, and he is. Michael himself steps in permanently (not as any interim CEO) to turn the company over from the monster of issues that it is facing.

But I've seen both of them address live here at UT at different occasions. Although Kevin had a little more charm that Michael, I was not impressed with both. Well, I'm talking of the terrific likes of Jeff Immelt (CEO of GE) and Rick Wagoner (CEO of GM)!



Anonymous Anonymous said...

Michael Dell quashes 2006 employee bonuses


9:15 PM  

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