Why Dell Will Never Be Great Again

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DellIt's getting harder for Dell (DELL) to think outside of the box.

Shares of the PC maker opened sharply lower on Wednesday after posting disappointing financial results. For the fiscal quarter that ended earlier this month, earnings tumbled 33% on a 4% decline in revenue.

You don't need to dig deeper than that into Dell's income statement to know that sales are soft and margins are contracting.

It also doesn't help that Dell's outlook for the new quarter is equally uninspiring. By pointing out that results will be in line with "historical seasonal trends" in climbing 2% to 4% sequentially, Dell's saying that the first quarter wasn't a fluke.
"We need to execute better," Dell's CFO said about the report.

Oh, I think Dell's doing a pretty good job of executing itself.

The People Have Spoken

Some segments at Dell are showing signs of life, but the company can't escape the sharp 12% plunge in its consumer business.

This may be just a fifth of the company's business, but Dell has fallen a long way since the "you're getting a Dell, dude" ads were popular.

A lot of this is simply the handiwork of the public migrating to "good enough" computing devices. Folks don't need to fire up their desktops whenever they want to fire off an email, surf the Web, or stream video. Smartphones and tablets will do the trick, and those are two categories that are growing at a time when PC sales have been stagnant.

Dell was slow to embrace the netbook craze two years ago, and it's just out of touch when it comes to mobile devices and tablet computers.

The company's trying, but it's just not the same kind of force that it is in business-facing computers.



A Laggard Among Laggards

Dell isn't making the most of a bad situation. It's actually losing market share to rival Hewlett-Packard (HPQ) and market darling Apple (AAPL), and it's not as if things are going so well at HP given the tens of thousands of layoffs that are looming there.

Investors knew that Dell was going to disappoint when industry tracker Gartner rolled out its latest quarterly read of PC sales in this country a few weeks ago.

Gartner estimates that 15.5 million PCs shipped during the quarter, a 3.5% decline from the first three months of last year. Worldwide PC shipments did inch 1.9% higher, but it seems as if Dell hasn't been invited to that turnaround party.

Let's take a closer look at the market share changes over the past year in this country.

2012 Q1
Mkt. Share
2011 Q1
Mkt. Share
Unit
Growth
HP
29.0%
26.2%
6.6%
Dell
22.3%
22.3%
(3.6%)
Apple
10.6%
9.8%
3.8%
Acer
9.1%
11.9%
(25.9%)
Toshiba
8.7%
10.4%
(19.2%)
Source: Gartner.

Yes, Dell is still in full possession of its silver medal. It's not hurting as badly as laptop-centric Acer and Toshiba. Even Apple posted a 1% decline in MacBook revenue in its latest quarter.

However, something's just not right at Dell.

The Turning Point

A dozen years ago, Dell was hailed as a model worth following. Leading companies in different industries would tour the Dell campus to see how it nailed the direct-selling business that began all the way back to Michael Dell assembling desktops in his University of Texas dorm room.

Even as Asian companies emerged with manufacturing cost advantages, Dell stood strong.

However, in a move to improve its expenses, Dell opened a call center in Bangalore in 2001. Dell went on to expand its tech support outsourcing with other call centers in India, and that's when customers began complaining. Whether the knocks of scripted responses or communication difficulties were fair, Dell was no longer perceived as an American role model.

Dell temporarily retreated out of India a couple of years later, but the costs of handling all of its tech support closer to home proved to be unwieldy. It was also around this time that Dell dumped Ben "Steve the Dell Dude" Curtis after he was arrested for attempting to buy pot in New York City.

Nothing seems to have gone Dell's way since.

Dell's Bells

Dell was able to achieve some savings through cost cuts a couple of years ago, but there's only so much more expense shaving that Dell can do now.

Following HP into making model-widening acquisitions and taking a page out of the IBM (IBM) playbook by throwing its hat into the ring of high-margin business services are just temporary solutions. Dell has a problem, and it's in the box.

Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of International Business Machines and Apple. Motley Fool newsletter services have recommended buying shares of Dell and Apple, and creating a bull call spread position in Apple.



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152 Comments

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ronss

here are the things that is coming back to haunt dell as i see it...i bought my first computer from dell, t600r......

1. outsourcing, that really angered many
2. the cheaping of the product, no more choices in customiztion...you use to get to pick video card you wanted, ati or nivida...etc.....the desktop cases really got cheap compared to the first one i bought....just so many decisons that were for the stockholder , and not the customer.
3. the changing of the customer support forum,,,i don,t think dell realizes how that turned many against them...it was dell did not care anymore...

June 30 2013 at 5:27 AM Report abuse rate up rate down Reply
mizrob

yea Dell taking it's customer support to India/Pakistan or wherever they excel in not speaking legible english ruined them for a lot of people I know...
Those iphones, teeny computers, notepads do NOT work for evreyone - some people need those larger screens, keyboards.... the original "group" of people who started with computers (including myself) are aging, our fingers aren't so nimble, our eyes aren't as sharp but we still like our computers. The desktop will never completely die, there are some applications that notepads just do not work for....

May 28 2012 at 12:49 PM Report abuse +1 rate up rate down Reply
jaxkiang

Better off buying a mac. They don't have to be updated that much and if your looking for basic computer features they don't crash that much. They work decades after you buy them - an investment but well worth it..

May 28 2012 at 10:56 AM Report abuse rate up rate down Reply
billa518

Dell is following the Gateway 2000 business plan to the letter -
1. Start with a better-than-average product and exceptional customer service,
2. Explosive growth
3. Reduce quality and/or raise prices. Rely on reputation for continuing sales.
4. Slash customer support.
Next up -
5. Sink into irrelevance.
6. Get bought by some off-shore wannabe.

May 28 2012 at 10:16 AM Report abuse rate up rate down Reply
My 3 kittykats

I like my Hewey Pack. I have both desk and notebook. When you go Hewey Pack you won't go back

May 28 2012 at 9:11 AM Report abuse rate up rate down Reply
vtmichaelb

I will tell you why they were never were and never will be great, The absolute worst customer service I have EVER experienced! They just want to sell product they don't care one bit what happens after that!

May 28 2012 at 8:54 AM Report abuse rate up rate down Reply
west hammond

VERY satisfied VOSTRO series laptop(s) owner.

May 28 2012 at 2:43 AM Report abuse rate up rate down Reply
west hammond

VERY satisfied VOSTRO series laptop(s) owner. i love my smart phone but please...are you kidding? do not compare these devices. i see how unproductive kids don't need a laptop so much anymore except for gaming, but those of us turning the economic wheels live on laptops.

May 28 2012 at 2:41 AM Report abuse rate up rate down Reply
blskyco55

Dell computer= Boat Anchor thats all there good for.

May 28 2012 at 1:07 AM Report abuse +1 rate up rate down Reply
bcheerful3

I heard LOADS of customer service complaints from friends and family and ergo never gave Dell a shot when making my personal purchases. They refused to stand behind their product and are now paying the price.

May 27 2012 at 11:47 PM Report abuse +1 rate up rate down Reply