News Blog

This blog has been updated with Dell executive and analyst comments.

It's not a blow-out quarter, but Dell investors will likely be pleasantly surprised.

The Round Rock, Texas, PC maker reported its first-quarter earnings Thursday, with revenue of $16 billion, a 9 percent improvement from a year ago, and earnings of 38 cents per share, a 12 percent increase.

Analysts were expecting earnings of 34 cents per share and revenue of $15.4 billion to $16.2 billion. In after-hours trading Thursday, shares of Dell were up 7.5 percent.

Following a turbulent 2007, Thursday's results were a more encouraging beginning for this year. "We're beginning to see positive results in our performance," founder and CEO Michael Dell said during a conference call with company investors Thursday afternoon. He pointed to growth in all business segments in all regions as the impetus. He said that while the industry grew 14 percent in unit shipments, Dell was able to grow 22 percent.

But is this the comeback that Dell has been promising, and investors have been waiting for? Not quite. However, it appears the company is at least on the right track. Though the No. 2 PC vendor in the world has fallen behind both HP and Acer in notebook sales, Dell showed improvement in the past year. Notebook revenue was up 22 percent over the past year, but just 2 percent from the previous quarter.

"I think our results demonstrate we made some progress, but still a lot more to be done," said outgoing Chief Financial Officer Donald Carty, who is to be replaced by Brian Gladden on June 13.

Cost reduction was one of the company's main goals in the past year. Dell reduced its headcount by 3,700 people during the quarter, many in its consumer products divisions and in international sales, for a total of 7,000 in the past year, according to Carty. The company said in the same quarter a year ago it planned on removing 8,800 positions. Dell also said it has added about 2,700 employees through acquisitions, bringing the net employee reduction to 5 percent, and Carty emphasized that more thinning of company ranks is coming.

The Wall Street Journal's Walt Mossberg interviews Michael Dell at the D6 conference this week.

(Credit: Dan Farber/CNET News.com )

It's been over a year since Michael Dell hit the reset button, promising to revitalize his company that had fallen behind its main competitor, Hewlett-Packard. Dell admitted publicly at D6 Wednesday that his company had indeed missed a few very big trends, including retail and a focus on consumer products.

It was also a year ago that after telling his employees the company's hallowed direct model was no longer "a religion," Dell products first began showing up in Wal-Mart stores. Now Dell PCs and printers are available at many of the major electronics retail outlets worldwide.

Carty specifically pointed to retail initiatives as one of the driver's of the better-than-expected quarterly performance. Dell added 2,000 more retail locations worldwide in the past quarter, including Costco in the U.S., Best Buy in Canada, and several large Chinese outlets, to bring the total to 13,000 locations around the world.

But it's still too early to tell if the company's momentum in retail can be sustained.

"Are they getting a pop because they've just entered retail?," asked John Spooner, analyst with Technology Business Research. "Retail didn't get it fully in place until this January, so I wouldn't pass judgment until Q4 this year."

Unfortunately the timing isn't great in regard to the U.S. economy. In the earnings announcement, Dell acknowledged "conservatism in IT spending in the U.S. particularly with its global and large customers as well as public, small, and medium business accounts." The company said it expects the conservative spending trend to continue on through summer.

However, the company is making huge gains internationally. For the first time in the company's history, sales outside of the U.S. reached 50 percent. Dell particularly has its eye on the booming Chinese market.

"We believe China is going to become the largest retail market in the world for PCs," Michael Dell said. Dell's unit sales increased 140 percent in China over the last year, and the company plans to reach 3,500 retail locations in China alone by the end of the next quarter.

China, as well as India, are becoming the place for Dell to experiment, not only with products, but with different business models and with customers with no previously established sense of what to expect from Dell.

"In China you can blast out a run of 1 million notebooks, call them Dell 'X,' sell to distributors, and do pretty well," said Spooner. It's a great way for the company to test out products and market strategies before bringing them to their more established markets.

And it's clear there's still more change to come. Michael Dell said the company is still planning to introduce many more new notebook models by the end of this year. He specifically mentioned an "active back-to-school" season. Besides the already announced Latitude E series, it will be interesting to see if this is when Dell decides to introduce the mini-notebook Michael Dell was seen carrying around with him at the D6 conference in Carlsbad, Calif., Wednesday.

In December of 2002, I started a page on my Computer Gripes site devoted to Dell.

Accumulating gripes about Dell was like taking candy from a baby; there was no sport in it. Eventually, I gave up maintaining the page, but despite a total lack of advertising or promotion, people kept finding the page and adding their own gripes.

Now these Dell gripes are official.

The Office of New York State Attorney General Andrew Cuomo won a lawsuit on Tuesday against Dell and affiliate company Dell Financial Services (DFS). The illegal activity involved both computers and finance. According to a government statement, "Dell and DFS engaged in fraud, false advertising, deceptive business practices, and abusive debt collection practices." Wow.

The Associated Press reports that the attorney general's office had 700 complaints when the lawsuit was filed and has received more than 1,000 since. And that's just in New York.

"For too long at Dell," Cuomo was quoted as saying, "the promise of customer service was a bait and switch that left thousands of people paying for essentially no service at all."

State Supreme Court Justice Joseph C. Teresi, who made the ruling, said, "Dell has engaged in repeated misleading, deceptive, and unlawful business conduct, including false and deceptive advertising of financing promotions and the terms of warranties, fraudulent, misleading, and deceptive practices in credit financing, and failure to provide warranty service and rebates."

On the computer side, the decision says (the bullet points below are taken directly from the official statement) that customers were deprived of warranty tech support by Dell:

• Repeatedly failing to provide timely on-site repair to consumers who purchased service contracts promising "on-site" and expedited service;
• Pressuring consumers, including those who purchased service contracts promising "on-site" repair, to remove the external cover of their computer and remove, reinstall, and manipulate hardware components;
• Discouraging consumers from seeking technical support; those who called Dell's toll-free number were subjected to long wait times, repeated transfers, and frequent disconnections; and
• Failing to provide rebates that were promised to consumers.

On the financial side, Justice Teresi concluded that "Dell lured consumers to purchase its products with advertisements that offered attractive "no interest" and/or "no payment" financing promotions. In practice, however, the vast majority of consumers, even those with very good credit scores, were denied these deals. In a classic 'bait and switch' scheme, DFS instead offered consumers financing at high interest rates, which often exceeded 20 percent. Dell and DFS frequently failed to clearly inform these consumers that they had not qualified for the promotional terms, leaving many to unwittingly finance their purchase at high interest rates."

The response from Dell, besides disagreeing with the ruling, was that not many people complained. The same AP story quotes a Dell representative, who says, "We are confident that when the proceedings are finally completed, the court will determine that only a relatively small number of customers have been affected," and it reports earlier statements by Dell that the company "had 6 million transactions in New York between 2003 and 2006, with alleged complaints representing only a tiny fraction."

To help draw your own conclusion, read the original decision and order (PDF).

See a summary of all my Defensive Computing postings.

A New York State Supreme Court said Tuesday that Dell and its financial services arm misled customers.

Judge Joseph Teresi ruled that the world's second-largest PC maker engaged in fraud, false advertising, deceptive business, and abusive debt collection practices. The company was accused by the state of New York of offering no-interest or no-payment financing options for its products while Dell Financial Services would fail to honor them.

New York Attorney General Andrew Cuomo filed the suit in May 2007, asking for an injunction against the company's business practices and monetary damages for affected customers.

Further court proceedings will need to be held to determine what those damages will be.

Dell told Reuters it "disagrees" with the ruling. "We are confident that when the proceedings are finally completed, the court will determine that only a relatively small number of customers have been affected," according to the company's statement.

Ad giant WPP Group has hired the first CEO for its Dell-only agency, which is taking over the work of about 800 firms that have been coordinating ads and marketing for the PC maker.

Torrence Boone, who is leaving his job as president of the Boston office for digital marketer Digitas, will eventually oversee about 1,000 employees at Project Da Vinci, the temporary name for the ad agency that's been created to serve Dell. So far, the agency has hired about 500 employees.

Torrence Boone,
CEO, Project Da Vinci

(Credit: Business Wire)

Boone, who is 38, is set to start work in June out of the New York headquarters of Project Da Vinci.

"The opportunity to play a leadership role in the creation of a new agency, built-to-spec, with an ambition to redefine the client-agency relationship, comes along perhaps once in a lifetime," Boone said Monday in a statement.

Before working for Digitas, Boone was vice president and general manager at interactive marketer Avenue A.

Last year, Dell signed a three-year, $4.5 billion contract with WPP to consolidate its ad and marketing efforts within one central agency. In addition to the New York headquarters, Project Da Vinci will have offices in Austin, Miami, and San Francisco, and will also work out of London, Sao Paulo, Singapore, and Beijing.

WPP signed a deal last week with Yahoo. Under the deal, three WPP subsidiaries--GroupM, 24/7 Real Media, and WPP Digital--will have access to Yahoo-served ad space and work closely with the Right Media ad exchange.

As it continues to work on a turnaround, Dell on Monday announced that it has named a former General Electric executive to serve as its new chief financial officer.

Brian Gladden, who had nearly 20 years of finance and management experience at GE, will join the computer maker Tuesday as a senior vice president, assuming the role of chief financial officer on June 13. Gladden is coming from Sabic Innovative Plastics, a GE Plastics spin-off where he has been serving as chief executive. Sabic is a unit of Saudi Basic Industries.

Prior to joining Sabic, Gladden held such posts as CFO of both GE Plastics and GE Medical Systems Healthcare IT.

"We look forward to welcoming Brian as an operationally focused CFO whose skills in running multibillion-dollar enterprises, and substantial experience with an industry leader, make him an ideal fit for the global economies in which we operate," Michael Dell, chief executive of Dell, said in a statement.

Gladden is replacing Donald Carty, who is stepping down after roughly 15 months on the job.

Carty, who will remain a Dell director, took over the CFO position in January 2007, as the computer maker tried to address a Securities and Exchange Commission investigation into its accounting practices.

Carty, who was on Dell's board at the time of his CFO appointment, had been serving on the board's audit committee, which initiated its own investigation into the company's accounting practices.

"Don has played a key role in re-establishing transparency and integrity in our financial practices, and we are extremely grateful to have had his leadership," Michael Dell, chief executive, said in a statement.

Dell is taking steps to promote Alienware PCs on its Web site as the PC maker tries to collaborate more--rather than compete outright--with its Alienware unit.

Dell has added the Area-51 m9750 to its gaming laptop Web site, according to a Dell company blog.

Dell Web page features new Alienware game notebooks

(Credit: Dell)

"The Alien invasion has continued, with the addition of the Area-51 m9750 to the Dell gaming laptop Web site lineup," according to the post. The 17-inch notebook offers two 512MB GeForce 8700m GT cards as an option.

The blog also notes: "It was never really in the cards to do away with the XPS gaming products early, but instead to integrate the development teams from both Alienware and XPS...The XPS isn't going away, though it may go in new directions as hinted by the XPS One and the slimline XPS m1330."

A Wall Street Journal report had stated that Dell would quickly kill off its XPS line, which Dell later denied.

The starting prices for two featured Dell XPS M1730 notebooks are about $600 and $1,100 more than the starting prices for two featured Alienware systems on Dell's notebook gaming page.

An Area-51 m9750, for example, starts at $1,399. But add a 17-inch WideUXGA 1920 x 1200 screen, an Intel Core 2 Duo T7600 2.33GHz processor, another gigabyte of memory (for a total of 2GB), and a 160GB 7200 RPM hard disk drive, and the price jumps to $2,524.

This brings the Alienware notebook a lot closer to the Dell 17-inch XPS M1730 World of Warcraft Edition in price ($2,599) and features. Interestingly, the Alienware m9750 notebook is not available with 45-nanometer Intel T8300, T9300, T9500 (or X9000 Extreme) processors. Dell does offer these processors.

Fast silicon is hitting a wall in game PCs, according to Alienware, which is looking for ways to boost game PC performance.

Parent company Dell vowed on Tuesday to pour more resources into the game PC unit and invest in "product development, design, and engineering."

Alienware Area-51 m9750 notebook

(Credit: Alienware)

Alienware's Marc Diana believes optimizing systems for the 64-bit world would allow game PCs to make big strides in performance. In effect, today's 32-bit environments are putting a crimp on PC-based gaming.

"So many people are caught up in this hardware race. Dual-core, quad-core this and that," said Diana, who is Alienware's product marketing manager for desktops. "If these companies--Intel, Microsoft, Nvidia, ATI, and AMD--if they'd just sit down and realize the performance benefit of optimizing their drivers and software for 64-bit."

"I think that would make sense now," Diana said emphatically.

Much of the software in the PC world is still 32-bit, including most copies of Windows XP and Vista. In fact, Diana said Alienware doesn't offer 64-bit operating systems because "we don't feel comfortable shipping a system to a customer with the 64-bit driver support that's out there in the industry."

The most obvious limitation of 32-bit operating systems and applications is a cap--4GB--on how much memory an operating system can use. And some applications can't even use the entire 4GB. "Who cares about DDR3 memory? What about giving me 4GB?" Diana asked.

"They're building (software) for something that is inherently very old technology," he said. "We (need) drivers that are very healthy in the 64-bit space. I'm not saying that 64-bit drivers don't exist. I'm just saying there's not enough software development and support on that end to warrant companies like us to move to 64-bit operating systems."

He also talked about other factors--beyond faster processors and graphics chips--that affect system performance, particularly for consumers who have limited budgets. "If I was looking to invest in one component over another," Diana said, "I would probably invest in a really good motherboard," and after that, a dual-core processor and a midrange graphics card such as Nvidia's 8800GT or ATI's X2 card.

New DDR3 memory is also becoming more of a factor. DDR3 memory is offered in two Alienware platforms. "It is the highest-performing memory now on the market. But I'm not so sure it's quite there yet. The cost is very high," he said. "Six months from now it will start making a lot more sense (economically) than it does right now." Because of this, DDR2 memory is still widely used.

DDR3 memory modules use less power and double the data prefetch buffer to 8 bits from 4 bits per cycle. DDR3 also operates at higher clock rates (1600 MHz), among other improvements.

Dell issued a statement on Tuesday night, saying the XPS brand will live on but that more resources will go into Alienware.

Part of Dell's statement takes issue with a Wall Street Journal report.

"Dell XPS and Alienware are both great brands...and both will live on," spokeswoman Anne Camden said in a blog. "But we are going to expand our focus on Alienware. We are going to invest like crazy in product development, design, and engineering to propel Alienware as the premier gaming brand in the future."

Camden emphasized that XPS is a premium, cutting-edge brand--beyond just a game PC label. "XPS remains an important Dell brand with its heritage of premium performance...In the last year, XPS has expanded well beyond a gaming brand--look at the XPS One, our first entry into the all-in-one market, the XPS M1330, an industry leading ultraportable or the XPS 420 desktop, designed for multimedia activities."

But the statement also takes issue with aspects of The Wall Street Journal report. "XPS gaming systems will remain an important part of our gaming product portfolio. We don't plan an early phase-out of these systems, as the WSJ incorrectly stated, and in fact will continue to refresh them to keep them on the front edge of gaming," Camden said.

"We want to lead in this market. Simple, really. So that's why we're investing so much in the gaming systems of the future--we want those on an Alienware or XPS to reign supreme."

So Dell appears committed to XPS laptops, even those that excel at gaming.

Dell will offer an Nvidia dual graphics chip upgrade for 17-inch XPS M1730 gaming notebook owners--but stepping up won't be a cakewalk for MediaDirect users.

Dell XPS M1730 notebook with Nvdia 8800M GTX

(Credit: Dell)

The upgrade from the Nvidia dual 8700M GT to dual 8800M GTX graphics is in the works and will likely be released later this month, according to Dell.

Some users were upset when Dell upgraded the graphics in newer models of the M1730 to the 8800M GTX. The XPS 1730 with the 8800M GTX earned a score of almost 13,500 in 3Dmark06--which is about a 49 percent performance gain over two 8700M GT cards in the same notebook.

"In other words, games like Crysis, BioShock, Far Cry 2 and Age of Conan will scream," Dell said.

There will be two options. One will be done with an "installation package" and the other will be a "do-it-yourself kit."

"Considering the number of screws holding this beast together, most people will probably want the installation," Dell said.

There is one gotcha though. "MediaDirect 3.3 is not compatible with the driver for the (new) Nvida card," Dell said. MediaDirect is a Dell technology that enables a user to watch DVD movies, slideshows, or listen to music without having to boot the complete XP operating system. MediaDirect is installed in a special partition on the hard disk drive. When the computer is off, pressing the MediaDirect button will boot the MediaDirect partition instead of XP.

Dell said that the MediaDirect "incompatibility means that the MediaDirect software needs to be upgraded. Unfortunately, the upgrade will require a reformat and reinstallation. Beyond that, it will also require you to repartition the hard disk to make room for the new version of MediaDirect, which is a bit larger. Data loss has been a major concern for the engineers working on a solution. At this point, it would appear that there's really no way around wiping the drive to make the upgrade work with every feature."