Turnaround time for Michael Dell

His credentials as a tech entrepreneur can't be questioned, but why does Michael Dell find himself reinventing his company and career?

A correction was made to this story. Read below for details.
Turnaround time for Michael Dell

news analysis The latest Dell executive to leave as a result of Michael Dell's housecleaning was the man perhaps second-most responsible for the company's once-remarkable success.

Kevin Rollins came into Dell in 1996 as the operations and business expert ready to help a 31-year-old Michael Dell make his direct-mail company grow. Together, the two built a PC powerhouse that changed the industry and made billions of dollars for shareholders. Dell played the technology visionary, Rollins made sure the factories kept humming, and the company found new ways to grow.

But their meteoric rise to the top of the tech industry slowed dramatically in 2006, Rollins' second year as Dell's CEO. He paid the price Wednesday for Dell's slipups in 2006, resigning as CEO and stepping down from the company's board of directors.

So what happened? Dell appears to have fallen prey to a common problem for those on top: quite simply, the world changed, and Dell did not change quickly enough.

"The usual bag of tricks--leveraging the supply chain and their economies of scale--hasn't worked," Richard Shim, an analyst with IDC, said after Dell announced the departure of Rollins.

Dell has lost both its market share lead and most-favored hardware company status on Wall Street to Hewlett-Packard. In trying to regain market share, Dell may have spent too much time bottom-feeding on the low end of the PC market, eroding the operating margins that were once the envy of the entire PC industry.

"The usual bag of tricks...hasn't worked."
--Richard Shim,
analyst, IDC

And perhaps most ominously, the company is under investigation by the Securities and Exchange Commission for accounting irregularities that occurred on Rollins' watch.

But there are problems at the PC maker that even Michael Dell won't be able to fix overnight. Dell thrived during both the dot-com boom and resulting bust, when competitors like Hewlett-Packard and Gateway foundered. During the boom, it rode the wave of corporate PC purchases. After the bust, it established itself as the low-cost leader in a market where people were just looking for PCs: nothing fancy, just a PC that will get the job done.

With additional gains in servers and storage sales, Rollins began talking about ambitious revenue goals of $60 billion by the end of 2006 and $80 billion by 2008 or 2009.

But those goals depended on Dell expanding into other markets. Rollins knew the PC market was maturing, and so the company devoted almost all of a three-day analyst meeting in April 2005 trying to convince analysts and the media that Dell was no longer a PC company; that it was on the cusp of becoming a broad IT powerhouse. The message was that even if the PC market slows, Dell has the ability to continue growing at leaps and bounds.

Fast-forward to 2006, when the company that perfected nimble PC production looked decidedly flat-footed when reacting to changes in the market:

• The corporate PC market slows, as businesses stop a three-year post-Y2K binge on PCs and wait to see how Microsoft's Windows Vista will fit into their application environments.

• Consumers grow increasingly tired of boring PCs and shoddy customer service, and start flocking to retail stores to search for new PCs that have style and panache.

• Advanced Micro Devices carves out a significant chunk of market share at Intel's expense and establishes itself as a credible player with both businesses and consumers.

• Notebooks threaten to overtake desktops in mature economies like the U.S., and hold a solid majority in retail stores by the end of the year.

 

Correction: This story gave an incorrect age for Michael Dell in 1996. That year, he turned 31 years old.
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