December 12, 2006 2:24 PM PST

Dell revamps product group, adds executives

After a year many at the company would like to forget, Dell is making significant changes to its executive lineup and structure.

Dell announced a new operating structure Tuesday that divides the company's product business into new blocks. At the same time, several new executives are arriving at the Round Rock, Texas, company's offices in a bid to inject some new thinking into management ranks.

Product development at Dell is now divided into two distinct groups: the Business Product Group and the Consumer Product Group. Brad Anderson, the company's top server executive, and Jeff Clarke, Dell's longtime PC group leader, will share responsibility for the Business Product Group. Alex Gruzen, brought into Dell from Hewlett-Packard two years ago to run the notebook operation, will head up the Consumer Product Group.

Among the new arrivals, Dell has signed up Steve Schuckenbrock, formerly the co-chief operating officer and executive vice president of sales at IT consulting giant EDS. He will join Dell in early January as head of global services.

In recent weeks, the company also snapped up Sona Chawla from Wells Fargo to run Dell's prominent online business, and Gang Yu of Amazon.com was tapped to shore up Dell's supply chain operation in China. In other moves, Rich Becker and Richard Conrad defected from rival HP to run Dell's blade server business and worldwide procurement operations, respectively.

On the departures side, John Medica, who was to lead Dell's push to come up with cutting-edge designs for its products, will retire at the end of the first quarter of next year. Medica's duties will be split between Anderson, Clarke and Gruzen, a Dell representative said.

Former darling
It has been a humbling year for Dell, which just two years ago was the darling of the IT industry. In 2004, it was coming off several years of strong growth propelled by a lean manufacturing organization and a healthy PC replacement cycle at U.S. corporations. CEO Kevin Rollins set audacious goals for the company in his first months on board, predicting Dell would blow through $60 billion in yearly revenue by 2006 and reach $80 billion in yearly revenue by 2008 or 2009, as it expanded into new areas like printers and services.

That didn't happen. Dell will fall short of that $60 billion revenue goal and is only expected to grow 6 percent next year, according to the average estimate of financial analysts surveyed by Thomson First Call.

So what changed? Among other things, corporations pulled back on their desktop PC purchases after a frenzy of upgrading, consumers became fed up with shoddy support and boring products, and Dell failed to translate its runaway growth in the PC market to its new targets. As a result, Dell has lost significant market share this year and missed financial targets during several quarters, and its stock is down 37 percent from its high watermark in July 2005.

Despite its talk about expanding into other global regions and product segments, Dell remains beholden to the U.S. corporate PC market. Around 85 percent of its revenue comes from businesses. Sixty-four percent of its revenue comes from North and South America, according to its third-quarter results. Desktop PCs sold to both commercial and corporate customers accounted for 32 percent of its revenue, and U.S. shipments of desktop PCs are shrinking.

At the same time, Dell's competitors have figured out how to duplicate its cost savings while taking advantage of a surge in PC activity at retail stores.

Dell has shown a willingness to make changes in some areas, as shown by its embrace of Advanced Micro Devices' processors and its experiments with quasi-retail stores in Texas and New York. But it has downplayed talk of a broader entry into the retail market and has held strongly to a notebook manufacturing strategy avoided by its rivals.

Dell is hoping the executive and group changes breathe some life back into an organization that was on everyone's list of well-oiled corporate machines just a few years ago. A healthy HP and a changing PC market will test its resolve in the coming year, as it tries to integrate the new executives.

Many of Dell's problems--such as its late recognition of strong demand for AMD's processors and its customer support problems--have been blamed on a poor understanding of what its customers really wanted. Changing the organization to focus directly on those customers, rather than on the products themselves, is a sign that Dell is maturing as a company, said Roger Kay, an analyst with Endpoint Technologies Associates.

Part of that maturation also involves bringing in executives who may be PC industry novices but are proven managers who know how to run large, prominent businesses, Kay said. "This is Dell saying, 'We're not standing still, we're not stuck. There are still people who want to work here,'" he said.

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