February 1, 2007 4:00 AM PST

Turnaround time for Michael Dell

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.

CONTINUED: Dell blindsided?…
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18 comments

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interesting
nice article

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Posted by darix2005 (31 comments )
Reply Link Flag
Maybe NOW they'll build PCs faster...
I know it's a catch 22.... but I don't bother looking at Dell any more because of the very thing that got them all their success in the first place (where they don't make the PC I'm buying until after I order AND pay for it in advance).... it takes too long to get the PC I want... I'll settle for one that's not quite as customized, and get it sooner somewhere else.
Posted by johnxtampa (22 comments )
Reply Link Flag
AGAIN this changes nothing...
Kevin Rollins during his tenure at Dell basically took a back seat.

Michael Dell was always driving behind the wheel. First and
foremost its his company, Rollins was a babysitter at best.

So theres a big hoopla article now that hes suddenly taking back
the CEO position.

Where's the story?
Posted by ServedUp (413 comments )
Reply Link Flag
Maybe this is an acknowledgement...
that Dell isn't doing well and something needs to change. Kevin Rollins may be taking the fall. But you're right -- it's going to take more than an executive shakeup to make a difference. Unless Dell fixes their customer satisfaction issues they're going to continue to slide.
Posted by vm019302 (85 comments )
Link Flag
Could it be...
...that Rollins was close to cutting a deal with Apple to put OS X on Dell machines?

Or--it could be that he WASN'T!
Posted by Norseman (1319 comments )
Reply Link Flag
Cheap parts
I've read Dell puts cheap parts in it's puters. My last Dell I had the
intergrated sound blew.
Posted by paulsecic (298 comments )
Link Flag
It's Simple: Quality Sinks, Now Stinks
Dell used to rule the waves. You can give a whole lotta reasons why Dell is having problems, but none is more clear than the quality just flat out stinks to high heaven now. Do they buy their hard drives from Somalia? I've had to replace Dell hard drives in my last two (and I do mean LAST) Dell laptops.

Memo to Dell: stop buying crappy components. Stop shafting us. We can very easily take our money elsewhere. It will be a LONG time before I ever even look at a Dell.

You suck, Dell.
Posted by HansinYabutay (31 comments )
Reply Link Flag
Selling the Second one
I had a Compaq, Compaq stopped selling thru computer stores for a while. I had a Northgate, excellent service, but they left the market

Now I have a DEll. First Dell mixed my order up with another person and was not going to send the upgrade for office. Then I had problems with cold boot; evidently others had the same problem. For 3-years though extended warranty the problem was not fixed by Dell. Guess what on a recent update of the computer, Norton find a registry problem and fixed the problem. Evidently Dell left the Audit Mode in Windows turned on; this was supposed to be turned off prior to shipment. In spite of logs sent, copies of the register the service people did not discover what Norton found.

Selling the first computer to someone is easy, Building a loyal following that will buy additional computers is harder.

I know that us people at home only buy them one at a time, but we deserve help too. I would bet that now there are as many computers at home as at work.

Dell has never replied, to E-Mails that I sent recently to tell them what the real problemis.
Posted by JayWes (35 comments )
Reply Link Flag
After reading all these comments...
...I think Mike should sell off the company and return the money to its shareholders.

(Sorry, couldn't resist. :-)

Here's my Dell story...

A good friend bought a pretty high end Dell system ... about $2K.

Each time she has a problem, she asks me to help her call Dell tech support, since she can't understand their very heavy accents.

One of the problems was her optical USB mouse. The pointer on screen would sometimes become eratic or jump around on its own. Dell support insisted this was normal or that she was using it on the wrong type of surface. They wouldn't help her, and I got tired of hearing her complain about it. So I bought her a $10 replacement USB optical mouse ... the cheapest mouse I could find! It works perfect.
Posted by open-mind (1027 comments )
Link Flag
Weird Problem On New laptop
A friend of mine recently bought a new Dell laptop with Windows XP Media Center. He wanted me to break it in for him. Out of the box, I noticed that the mouse cursor would appear to flicker -- I have never seen something like this. It looked like brief hourglassing. I figured something running in teh background was caausing it. I started disabling XP services that were not part of core operation. At the point where I turned off the XP Media Center Extender service the flicker went away. It seems like Dell should have caught this problem in QA before the laptop went out the door. I can only imagine how many others have thsi same problem and are clueless as to what is going on. God forbid they have to talk to Sunil in India about it.
Posted by Stating (869 comments )
Link Flag
One Semi-Omission
You made one semi-omission, only touching very lightly on bad customer service. Frankly, since they decided to try to focus on selling to business the typical consumer has been shafted, with only large business tech support coming back to the U.S. And the quality of their Indian support staff is pretty darn low. I'm good with accents and I've had trouble making out what some of their support people are saying. In addition if their mastery of English isn't better than what I've seen it's very easy for support and a customer to just talk right past one another, with neither understanding what the other is saying. And this bad service has gotten a lot of publicity with articles here, Business Week and other large circulation publications.
Posted by Jim Satterfield (42 comments )
Reply Link Flag
No Mini Form Factor, 5-10 Day Ship
I simply do not understand why in this age of media center PCs, Xboxes, Mac Minis, etc., Dell does offer small form factor PCs, ala Shuttle. Their XPS 210 is still way too big, and too expensive at $1000.

Many people do not want a mini-tower form factor PC in their living room or bedroom. They want something small and quiet that they can put in a bookshelf. The lack of form factor diversity shows a lack of imagination on Dell's part. Also, in this day of instant gratification, Dell's 5-10 day turaround seems an anachronism. You can drive to a CompUSA or Circuit City and have a new PC in an hour. You can even order online and go pick it up at the store in 15 minutes. What could be simpler.
Posted by Stating (869 comments )
Reply Link Flag
Dell
After a few month of taking delivery of a Dell PC I moved back to Canada where the Dell developed a problem. The 800 number I was given was trying to help until they found out that the machine was now in Canada which as they said was out of their territory. They gave me The Dell number in Canda
who nicely refused to deal with my machine because it was from the US. The PC now sits in my basement with a large screwdriver through it's heart. My resolve, never another Dell!
Behaviour by compamies of that kind will in time make itself felt to be sure, plus the mouth to mouth word. Thank you kindly for listening to me griepe:) Best regards, Hans H Mueller
Posted by Hans131 (11 comments )
Reply Link Flag
Service Service Service - where is it at Dell?
There service slipped just when folks needed confidence in them to go into new markets not a good time to farm out support! I stopped buying from Dell because of sales support/service and service of the end product both stink now!!
Posted by whitiing (2 comments )
Reply Link Flag
Dell started on the cheap
When Dell first started, he hired the cheapest people, built with the cheapest parts to the cheapest designs. A pattern for a good startup to compete against IBM, Apple and Compaq. He made his money and turned his profits back into the business. Smart, money wise but dumb for the consumer.
Posted by mjd420nova (91 comments )
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