Michael Dell Reclaims the Reins

Years of bad decisions and bad luck took their toll on the battered PC maker.

When Kevin Rollins replaced Michael Dell as CEO of Dell in 2004, company officials were quick to stress that the dual-management system the two had used—they even shared an office—would remain intact, giving the PC maker continuity going forward.

But in the two-plus years of Rollins tenure, the once-highflying Round Rock, Texas, company has seen its fortunes turn, its place atop the PC food chain taken by rival Hewlett-Packard and its revenues sag. Now Rollins is gone, having resigned Jan. 31, and the company again has turned to Michael Dell to regain its momentum.

Dell isnt the first tech company to reach into the past in hopes of securing its future, and the PC maker, its investors and customers are hoping Dells return mirrors that of Steve Jobs to Apple and not Ted Waitts second term with Gateway.

Rollins job security had been in question for months and wasnt helped when Gartner released its quarterly and yearly PC market reports Jan. 17 that said Dell had lost more ground to HP. Dell lost 17 percent of its U.S. market share in the fourth quarter, causing one analyst to say Dells "accelerated shipment decline in the fourth is surprising."

Dell also announced Jan. 31 that its next quarterly results will be below analysts expectations.

To be sure, Rollins had several issues crop up that didnt help his cause, including Dell having to recall more than 4 million notebooks last year that were sold with faulty batteries from Sony, and an investigation by the U.S. Securities and Exchange Commission.

Still, said one customer, it was Rollins focus on containing costs at the expense of customer attention that drove the companys downward slide.

"In any reign, there are challenges that a company has to meet," said Graham Weston, executive chairman for Rackspace Managed Hosting, in San Antonio. "There were challenges during Michaels reign and challenges during Kevins reign. The difference is that the decisions Kevin made were wrong."

Weston pointed to the companys lack of attention to customer service and its reluctance to embrace Opteron processors from Advanced Micro Devices as examples. Rackspace, which buys about 1,000 servers a month, was exclusively a Dell customer until June 2006 when, unwilling to wait any longer for Dell to offer the more energy-efficient AMD chips along with its Intel-based systems, it opted to buy from HP as well. Dell now sells AMD-based servers.

"It was a classic example of a company putting efficiency first," Weston said. "They wanted one supplier, not two. They wanted one motherboard, not two … so they chose efficiency over what the customer wanted."

Weston expects Michael Dell to change that. "Michael is a computer guy," he said. "He cares what the customer wants more than about efficiency. … One of the first questions Michael will ask is, How do we service the customer better? And answering that will bring Dell back to greatness."

What Michael Dell will do next is a key question, analysts said. Many of Rollins initiatives reflected Dells thinking and business strategy, they said. Following Rollins departure, Dell voiced his support for the Dell 2.0 initiative, a holistic revamp of the companys strategy, including its product design and commitment to customer service.

Dell 2.0 still remains a long-term and far-reaching fix, though one that will not satisfy a testy boardroom eager to grow profits and regain market share, analysts said.

"There is no quick fix," said Roger Kay, an analyst with Endpoint Technologies Associates. "What Michael and company need to do is take a zero-base assessment of the company. There can be no sacred cows. They have to find out what practices are working and which ones are not working."

One of those sacred cows—Dells direct sales model—should be placed under a microscope, analysts said. In a note to clients released the day after Rollins resignation, Brian Alexander, an analyst at Raymond James, said Dell might have to look toward a more channel-oriented strategy to capitalize on growing markets, such as Acer has done in Europe and Lenovo in China.

Still, there is a feeling that Dell will continue the same business strategy as Rollins, except that he brings his stature in the IT industry to the company, analysts said.

As for the companys products, analysts said the company has to bring its consumer PCs in line with what users want, namely features, experiences and service that has been associated with other vendors, such as Apple. On the enterprise side, Kay said Dell is in good shape but will likely work on improving its service offerings. An influx of some new managers, executives and possibly a new chief operating officer, Kay said, will also help both the enterprise and consumer sides. ´