With apologies to Warren Buffett, it's only when the tide comes in that you learn who can swim. With waves of growth on the horizon for the tech sector, it's becoming increasingly apparent that Dell (DELL), the declining PC powerhouse, cannot swim. So maybe it's time for Michael Dell (pictured) to hit the showers. The company's founder returned in January 2007, supposedly to save the company after it spent years adrift. But his performance of late has been so poor that it arguably represents a breach of his fiduciary duty to shareholders. What makes Dell's slide particularly troubling is the apparent strength of other companies in the tech sector, including makers of microchips, personal computers and enterprise servers.
"We think this is a Dell-specific problem," Broadpoint AMTech analyst Brian Marshall said in an interview with CNBC. "They've had some trouble over the last few years guiding their company from a strategic perspective."
That's putting it politely. Last quarter, net profit fell to $337 million, compared to $727 million on year ago, down a brutal 54%, amid slumping revenues. Dell shares were brutalized Friday, down nearly 10%.
Marshall noted that other companies in the tech sector are showing signs of recovery -- and pointed out the companies poised to benefit from Dell's decline. "We see a massive tech upgrade cycle," Marshall said. "Dell is competing against IBM (IBM), HP (HPQ) and others, so who is poised to gain the most share?"
Along with those names, Marshall suggested that smaller players like EMC (EMC), NetApp (NTAP) and Brocade (BRCD) could see an opportunity to move on Dell. in other words, all of Dell's competitors are poised to drink the company's milkshake.
Price Problems, Focus Problems
Of course, Michael Dell's first responsibility is to his company shareholders. The company's stock price has fallen more than 30% over the last two years.
Last quarter, Dell gave up its ranking as the world's second-largest personal computer company to Acer, the Taiwanese tech giant. Meanwhile, Hewlett-Packard, the Silicon Valley pioneer, has been eating up market share with an increased emphasis on retail sales. By contrast, Dell does 80% of its business with corporations and the government.
Dell's dismal report raised serious questions about Dell's strategy to hold the line on pricing, even if it means losing market share.
As my colleague Peter Cohan wrote in September, price is important to consumers -- and during a recession, that's true more than ever. "Price matters for winning technology services deals," Cohan wrote. "You can't have a competitive price if your costs are higher than those of your competitors. So figure out who you'll be competing with and lower your costs at least to their level -- if not lower."
But pricing policy is just one component of Dell's failing business. It's entirely unclear if the company can be a successful PC company as well as a successful consulting company and enterprise business. Many companies have flamed out by trying to be too many things to too many people. Dell rival IBM famously ditched its PC business to focus on its consulting and enterprise businesses.
Meanwhile, the company's once-vaunted customer service is but a distant memory. And then there are the layoffs. Last year, the company shed nearly 10,000 jobs.
In September, Dell agreed to acquire information technology services company Perot Systems for about $3.9 billion, adding business technology consulting to its product line. It's a bold gambit to revitalize the company -- and Michael Dell had better hope it succeeds, before shareholders start calling for his head.
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