Dell In Troubled Waters

By: Zacks Investment Research Friday, August 14, 2009 4:21 PM

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Hard times seem far from over for Dell ( ). The company’s Chairman Michael Dell and Chief Executive Officer Kevin Rollins are encountering problems on all fronts.

Trouble started with the Sony ( ) laptop battery fiasco back in 2006, which prompted the company to recall over four million units. More recently, management decided to terminate its agreement with Intel ( ) and use Advanced Micro Devices ( ) chips instead. We believe this could impair consumer confidence, especially since rumblings of customer dissatisfaction are getting louder.

Further, one of its most successful business strategies is also not working well. Dell used to attract clients by displaying cheap products on the company website. Customers browsing the website would end up spending an additional $2500 on PC accessories.

This scenario is changing rapidly since PCs with enhanced processors and accessories are now easily available at stores. Rivals HP ( ), Lenovo (LNVYG) and Acer have also started pricing models at competitive prices, which is increasing competition for the company.

Despite these pressures, Dell refuses to adapt a business model to suit current market dynamics. While most of its competitors have attuned themselves suitably, Dell continues to stick with its supply chain management policy and direct sales model.

Again, management’s decision to cut costs is hurting customer service and product quality. Some customers are of the opinion that rival products are cheaper, more user friendly and come with better customer service.

Employees are also getting increasingly dissatisfied. Some employees believe that the company’s work culture is undergoing sea change, with the fun element receding gradually. Rumor has it that CEO Kevin Collins could soon part ways with Dell. If it loses key executives at this critical juncture, it would be a definite setback for the company.

The picture looks worse when we consider the weakness in recent results and the Securities & Exchange Commission’s (SEC) probe into Dell’s accounting policy. The company should restructure its business model in line with changing market dynamics and focus on employee satisfaction and product quality.

The company is trying to capture the Indian market, which could be an important step in the right direction. We believe that a revival in customer confidence will be the key to Dell’s success in the days to come.

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8/16/2009 12:23:42 AM From inexpensive to cheap by Sandy Dell made a name for itself by touting good quality yet inexpensive computers for the working man and woman. It was also renown for its excellent customer service. However, in recent years, Dell either got greedy or responded to dropping profit margins by cutting corners in both areas and essentially shooting itself in the foot. Not only are newer model products experiencing more problems as Dells scrambles to find the lowest bidder for parts and services, but the renown customer service line has been completely outsourced overseas. Which wouldn't be bad in and of itself...except that training seems to comprise of lessons in putting people indefinitely on hold, coming up with wild scenarios off the cuff, endlessly being transferred to the "wrong" department, or just hanging up on you. I've had all four happen to me, and I am not alone. The level of incompetence I describe seems farfetched, but I swear to you that it is true. I once was repeatedly rerouted to a department that only days and 13 phone calls later I found out didn't even exist. And this is after being told twice by an associate that she/he looked over and saw that department was closed for the day. It's a farce. What's worse is that Dell KNOWS. That's why their sales department is still handled here in the states with (for the most part) competent workers and a little to no wait time while all transactions AFTER the sale are handled by Moe, Curly, and Larry. Granted, Americans love a good bargain, but even we have our limits. Dell needs to wake up and stop operating like a shifty used car dealership. There's only so much money to be made while ostracizing your customers, especially in a business which sees repeat sales. Like the adage goes: Fool me once... Reply Rating: (1) (0)
8/16/2009 12:50:23 AM Kevin Rollins, CEO? by Editor "The company’s Chairman Michael Dell and Chief Executive Officer Kevin Rollins are encountering problems on all fronts." Kevin Rollins left Dell in 2007 under less than ideal circumstances. The fact that I know that and your staff does not concerns me and should concern anyone reading this article. Reply Rating: (1) (0)

Dell made a name for itself by touting good quality yet inexpensive computers for the working man and woman. It was also renown for its excellent customer service. However, in recent years, Dell either got greedy or responded to dropping profit margins by cutting corners in both areas and essentially shooting itself in the foot. Not only are newer model products experiencing more problems as Dells scrambles to find the lowest bidder for parts and services, but the renown customer service line has been completely outsourced overseas. Which wouldn't be bad in and of itself...except that training seems to comprise of lessons in putting people indefinitely on hold, coming up with wild scenarios off the cuff, endlessly being transferred to the "wrong" department, or just hanging up on you. I've had all four happen to me, and I am not alone. The level of incompetence I describe seems farfetched, but I swear to you that it is true. I once was repeatedly rerouted to a department that only days and 13 phone calls later I found out didn't even exist. And this is after being told twice by an associate that she/he looked over and saw that department was closed for the day. It's a farce. What's worse is that Dell KNOWS. That's why their sales department is still handled here in the states with (for the most part) competent workers and a little to no wait time while all transactions AFTER the sale are handled by Moe, Curly, and Larry. Granted, Americans love a good bargain, but even we have our limits. Dell needs to wake up and stop operating like a shifty used car dealership. There's only so much money to be made while ostracizing your customers, especially in a business which sees repeat sales. Like the adage goes: Fool me once...

Rating: (1) (0)

8/16/2009 12:50:23 AM

Kevin Rollins, CEO? by Editor

"The company’s Chairman Michael Dell and Chief Executive Officer Kevin Rollins are encountering problems on all fronts."

Kevin Rollins left Dell in 2007 under less than ideal circumstances.

The fact that I know that and your staff does not concerns me and should concern anyone reading this article.

Rating: (1) (0)

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