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Dell, which has watched as rival Hewlett-Packard has drained away its once dominant market share, announced late on Jan. 31 that its namesake founder will return as the companys CEO.
Michael Dell will return as the companys CEO immediately, the company said in a statement released Jan. 31. Kevin Rollins, who took over as CEO in 2004, has resigned as the CEO and will abdicate his spot on the companys board of directors.
The Round Rock, Texas, PC maker did not give a reason why Dell decided to return to the company he founded in 1984, but the statement suggested that the board felt the company had lost its direction.
“The Board believes that Michaels vision and leadership are critical to building Dells leadership in the technology industry for the long term,” said Samuel A. Nunn, the director of Dells board, in a statement.
In addition to announcing Rollins resignation, the company announced that both its revenue and earnings per share for its fourth fiscal quarter will be below the expectations of Thomson Financial.
Thomson had called for earnings of 32 cents a share and revenue of $15.3 billion. When the company announced its third-quarter earnings Nov. 21, the company surprised Wall Street with revenue of $14.38 billion and earnings of 30 cents a share compared to the 24 cents that analysts had predicted.
After the news of Rollins resignation Jan. 31, shares of Dell were halted in after-hours trading. Shares stood at $24.22, after the announcement was made.
In the past six months, Dells signature PC business has struggled as HP has increased in market share both in the United States and abroad. On Jan. 17, IDC and Gartner found that HP had surpassed Dell in terms of worldwide shipments of PCs for the second straight quarter. Dell and HP were tied for the top PC vendor spot for 2006, according to the two reports.
As a way to counter its sagging reputation, Rollins and his executives initiated a strategy called Dell 2.0. The idea behind this program would be for Dell to improve its product design, while increasing its support and services as way to win back customer loyalty.
The plan also looked to increase revenue, profits and shipments of the company products. One of Dells major announcements from 2006 was the news that the company would begin to offer processors from Advanced Micro Devices in both its PCs and servers as a way to increase its offerings to both the enterprise and consumers.
For years, Dell has only used Intel processors.
In his statement, Michael Dell said he supported the 2.0 plan and would continue to support its goals as part of the companys long-term strategy.
“Dell has tremendous opportunities ahead of it,” Michael Dell said. “I am enthusiastic about Dell 2.0, which includes our plan to provide the best customer experience, build a strong global services business and ensure our products deliver the best long-term customer value.”
Despite its efforts with Dell 2.0, the companys problems have continued.
On Aug. 15, Dell announced that it would recall more than 4 million laptops that used faulty lithium-ion laptop batteries that were manufactured by Sony and sold in Dell notebooks between April 2004 and July 2006.
In addition, the company has been plagued by a U.S. Securities and Exchange Commission investigation into its accounting and financial practices. When it released its third-quarter results in November, the company announced that the investigation was continuing “into certain accounting and financial reporting matters, including the possibility of misstatements in prior period financial reports.”
Richard Shim, an analyst with IDC, said he believes that Dell has struggled to find its balance ever since the commercial PC began its slump about two years ago. Since then, other companies, such as HP, Apple and Acer, have been able to take advantage of the opportunities in the consumer market when Dell has not.
In addition, Dell has struggle in emerging markets, such as China, where local players like Lenovo have had the advantage.
“The company was not set up to take advantage of these markets,” Shim said.
The Dell 2.0 plan, which is seeking to be a more holistic and forward-thinking approach, should start to address some of these issues. However, the program will take some time to produce results, and it appears the companys board did not have the patience to wait while other companies were growing at Dells expense, Shim said.
“The company has really struggled in the last few years, and this is unfamiliar territory for them,” Shim said.
With Michael Dells return, the company will get some breathing room from investors and Wall Street as its leadership looks to reinvigorate the companys fortunes.
“For investors, the return of Michael Dell is a good thing,” Shim said. “It will be reminiscent of the glory days. There will be a honeymoon period, and some of the expectations will be lowered while Dell and his executives sort out what they want to do.”
Editors Note: This story was updated to include additional information.