Friday, August 18, 2006

Time to "Shut it Down and Give the Money Back to the Shareholders?": Profit Falls by Half at Dell

I'm kidding of course, but my, my how times change. In 1997, Michael Dell was infamously quoted as saying, "What would I do? I'd shut it down and give the money back to the shareholders" when asked how he might fix a then ailing Apple Computer.

Fast forward about 9 years, and the tables seem to have turned. Apple keeps hitting the ball out of the park every quarter, selling more and more Macs, dominating the portable mp3 player space, and innovating all over the place. Dell Computer? Well they just reported a 50% fall in profits in the latest quarter.
The chief executive, Kevin B. Rollins, said yesterday that the company had cut prices “too aggressively” in a number of markets to win market share, which hurt its profitability. “We didn’t do a good job of it,” he said.

HA! "Didn't do a good job of it." Are you kidding me? Dell has been pretty much GIVING away desktop computers and laptops for years, and it's finally caught up to them. The supposed Dell "price advantage" has always been smoke and mirrors, and now we have proof. Yes, for years Dell was able to build PCs cheaper than anyone else, but at some point their prices became so low, after all the deals and coupons were taken advantage of, that they clearly started taking a loss on these things.
Dell’s basic problem is that it is set up to sell the bulk of its computers in the market showing the slowest growth: United States corporations. Sales in Asia were up 27 percent year over year and in the Americas, outside of the United States, up 29 percent. But in the United States, sales grew only 3 percent.

Sales of PCs only grew 3%, whereas sales of Macs grew 12% in the last quarter year over year, with latest Gartner report saying that it's as high as 15.4%. Apple is now up to 4.6% of the total U.S. PC market overall. Meanwhile Dell has other issues, like having to recall 4 million laptop batteries:
Dell Inc. said it is recalling more than 4 million laptop computer batteries because they could overheat and catch fire, in what government safety regulators reportedly said was the largest recall ever in the U.S. consumer electronics industry. Dell said the lithium-ion batteries included power cells made by Sony Corp. that were included in notebooks sold between April 1, 2004 and July 18, 2006.

Granted this could have happened to Apple as well, these things do happen, and Apple has had their own recalls in the past, but Dell just can't seem to win these days.

And Dell seems to be trapped by their PC business. Attempts at other products have all failed miserably. Remember the Dell PDA? Development seems to have quietly ended. Dell mp3 players? Well apparently that didn't work out so well for them either, they've closed that down too.

Sadly it seems that after all this Dell executives still think they are right:
Consumers prefer to buy notebooks in stores rather than online, said Ted Schadler, principal analyst for consumer technology at Forrester Research. Dell sells online direct to consumers, though it displays its models in mall kiosks and is experimenting with displays in larger spaces in malls. He said consumers seemed to want to feel the notebook before they bought it.

But Mr. Rollins, the chief executive, said, “We disagree with that.”

According to data from I.D.C., Dell’s market share in the United States for notebook computers rose to 31.9 percent in the second quarter from 29 percent in the first quarter.

“The Dell model is a vibrant model,’’ Mr. Rollins said. “We are really going to stick with the Dell model.”

Traffic to Apple stores keeps increasing, and their percentage of the overall retail laptop market has doubled to 12 percent.

Apple's not completely without their own headaches right now either, but the good times seem to be rolling, especially in comparison to the company founded by the guy who thought back in 1997 that Apple was worth more to it's shareholders liquidated than as an ongoing business.

Read more: Profit Falls by Half at Dell


Post a Comment

<< Home