Dell would be better off without Dell
Commentary:
(MoneyWatch) Dell (DELL) is suffering. Even as CEO Michael Dell writes employees to say "our best days are still ahead," a company filing with the SEC paints a grim picture of the industry and what the PC manufacturer must do to reverse its slide.
Meanwhile, despite the chief executive's undeniably achievement in growing Dell into a major company, his recent leadership must be adjudged a failure given the hardware maker's downward spiral. At what point should repeated missteps disqualify a CEO for the job?
- Why Dell should quit the PC business
- Dell goes private to find maneuvering room
- HP and Dell hurting? Expect more of the same
To be sure, PC vendors face a brutal, and rapidly changing, competitive environment. As has been clear for years, computers aren't only a commodity, gutting manufacturers' profits: Hardware actually wants to be free. The latest low-cost PC on the market is the Raspberry Pi, which, at roughly the size of a USB thumb drive, sells for $25.
This industry drift into what is increasingly a sub-commodity market was bound to take a severe toll on Dell, Hewlett-Packard (HPQ) and other PC companies. Yet that doesn't let management at these companies off the hook, and for Dell that has always ultimately meant Michael Dell. Remember that IBM (IBM) sold its PC business to Lenovo in 2004. That was when the writing on the wall started to become visible, even if no one might have guessed how far down competition, a lack of differentiation and the introduction of powerful mobile clients would drive prices.
Dell's error was to essentially stand pat as the industry evolved. The margins that Dell once enjoyed were largely built on the backs of its parts and supplies vendors, which were expected to work for next to nothing and make their profits from other clients, a clearly unsustainable arrangement.
Then, in 2010, the SEC charged that Dell had padded its earnings statements with money it received from chip maker Intel (INTC), which wanted to push rival AMD (AMD) as far out of the market as possible. Dell didn't admit to wrongdoing, but it did pay a $100 million fine.
Dell also repeatedly struck out in the burgeoning mobile computing market with PDAs and smartphones that went nowhere. It has been left behind in the tablets. And company has missed its internal revenue projections for nearly two years, according to its recent proxy filing.
Michael Dell wants to his company private to save it by focusing on tablet/PC combinations and on sales of servers and network technology to large enterprise.
Except that Dell no longer belongs to its founder. The company has been publicly held for a long time and is no longer the executive's plaything. For years, he has been demonstrably unable to put Dell back on track. And yet as part of a proposed deal with private equity firm Blackstone, Dell reportedly asked for a guarantee that he would remain CEO.
Any healthy organization cycles through top executives over time because no one is at the top of his or her game forever and no one has the right set of talents for all circumstances. Perhaps it is time for Michael Dell to recognize that he may be no different than every other mortal in business.