Beleaguered Dell: Shut it down and give the money back to the shareholders

“Struggling Dell provided a glimpse into just how difficult its turnaround will be, reporting disappointing fourth-quarter results that include its first quarterly sales decline in five years,” Louise Lee reports for BusinessWeek.

Lee reports, “Investors will likely have to wait many months for any financial improvement. In a press release, Dell says that ‘in the next several quarters, the company expects that growth and margins will continue to be under pressure as it implements and refines’ its strategies. “That implies that Wall Street’s current expectation of things improving soon might be optimistic,” says Brent Bracelin, an analyst at Pacific Crest Securities.”

“The Round Rock (Tex.) company says net income came in at $673 million, or 30 cents a share, for the fiscal fourth quarter ended Feb. 2… And in its first revenue decline in five years, Dell says sales fell 5%, to $14.4 billion, in the quarter,” Lee reports.

MacDailyNews Note: It took Dell $14.4 billion in revenue to generate just $673 million in profit. By contrast, last quarter Apple generated $1 billion in profit on slightly less than half of Dell’s revenue ($7.1 billion). Just how much room does Dell have left to cut? Since Dell has nothing unique to offer — no Windows box assembler does (and forget Linux; outside of the server room, that dream is over) — how exactly does Michael Dell or anybody “fix” Dell?

Lee continues, “The company says unit shipments of desktop computers fell 18% and shipments of laptop machines grew just 2% from a year ago. Revenue in both segments fell… Analysts pointed to other red flags as well. Despite the decline in sales, Dell’s head count was 82,000, up 18% from a year ago, suggesting a rise in fixed costs relative to sales volume.”

Lee reports, “The lack of details emerging from the company is frustrating to analysts and other observers. “Investors want to know exactly what are the strategies and tactics” Dell is undertaking, says Fearnley. “There are still more questions than answers.” Citing the SEC probe, the company has yet to submit its detailed quarterly filing for last year’s fiscal second and third quarters and says that all results for those periods, as well as the most recent quarter, are preliminary.”

“‘It will take time to realize the future benefits of the improvements we are making today,’ CEO Michael Dell said in the earnings release. What’s less certain is just how much time Wall Street is willing to give him,” Lee reports.

Full article here.

Douglas A. McIntyre writes for 24/7 Wall St., “There are certain companies that probably cannot be turned around no matter who runs them. They tend to be in industries where macro-economic trends are against them, like the buggy whip business 150 years ago.”

“Dell faces several operational issues which it may not be able to address. One is a flattening in growth in PC sales, especially in the US. Another is a loss of market share. Yet another is the resurgence of rival Hewlett-Packard (HPQ). Dell’s model of selling directly to customers may be a handicap as other PC companies sell through retail chains. And, it has already taken so much cost out of the company by working down component prices from suppliers that there is not much left in that area to cut costs,” McIntyre writes.

McIntyre writes, “There is the temptation to look at the success at Hewlett-Packard and ask whether Dell can replicate it. But, HP is not doing as well as it might appear at first glance. The company’s guidance disappointed Wall St. In its most recent quarterly report, notebook revenue rose almost 20% quarter over previous quarter, but desktop sales were little more than flat. And, HP has its huge printer business to help buttress its overall hardware sales. Dell’s server sales revenue for 2006 was flat, so the company probably cannot look to that business as a driver for growth.”

Full article here.

MacDailyNews Take: Dell is a run-of-the-mill PC box assembler that offers nothing unique now that their price advantage has been eroded by other run-of-the-mill PC box assemblers. Dell does have at least one bridge to salvation, but, unfortunately for the company, CEO Mikey burned it to a crisp years ago. If Dell could somehow convince Apple CEO Steve Jobs to exclusively license him Mac OS X, he’d have a unique product to sell for a change. Perhaps Dell could focus on the enterprise market with Dell hardware running Mac OS X server and leaving rest to Apple initially. That might be a good deal for Apple, as it would give the Mac a big foot into the door of businesses worldwide. It would be a great deal for Dell, as it would probably save the company. Failing a game-changing deal like that with Apple (likely since Jobs would probably favor HP for such a deal), Dell would be better off following the advice he gave Apple back in October 1997; the same advice with which we’ve headlined this article.

Related articles:
Fortune: Michael Dell reiterates he’d love to sell Apple’s Mac OS X if only Jobs would license – January 22, 2007
PC box assemblers like Dell and others wish Apple would license Mac OS X – August 31, 2006
Michael Dell say’s he’d be happy to sell Apple’s Mac OS X if Steve Jobs decides to license – June 16, 2005
Fortune: PC makers realize Mac OS X is superior to Windows, they’re wooing Steve Jobs for licenses – May 26, 2005

Beleaguered Dell’s earnings drop 33% – March 01, 2007
Beleaguered one-trick pony Dell faces unclear future – February 14, 2007
Biting words on Apple come back to haunt Dell – February 10, 2007
Dell faces investor lawsuit over ‘illegal Intel kickbacks’ – February 02, 2007
Michael Dell is no Steve Jobs – February 02, 2007
BusinessWeek: Welcome back, Michael Dell – don’t get too comfortable – February 01, 2007
Rollins out as beleaguered Dell’s CEO, replaced by Michael Dell immediately – January 31, 2007
Total eclipse of Michael Dell goes off as predicted – January 10, 2007
SEC starts formal probe of beleaguered Dell – November 16, 2006
Apple does it again: New Macbook Pros much cheaper than Dell – October 25, 2006
Dell feels the heat from Apple – October 04, 2006
The Motley Fool: ‘Intel to Dell: you guys stink’ – September 28, 2006
Beleaguered Dell’s OS-limited PC sales ‘declining rapidly below expectations’ – analyst – September 21, 2006
Fortune compares Mac vs. Dell: ‘you’ll get more for your money with Apple’ – September 11, 2006
AP: Time to think different, Apple Mac beats Dell on price, software compatibility, and more – August 23, 2006
Dell profit falls almost in half; announces informal SEC probe – August 18, 2006
Dell cannot compete with Apple’s new Mac Pro price or feature set – August 15, 2006
Bear Stearns: Apple’s new Mac Pro, Xserve pricing well below comparable Dell systems – August 09, 2006
Dell warns of earnings miss; shares plunge 15% – July 21, 2006
Survey shows big jump in consumer interest in buying Apple Mac; Dell takes steep slide – July 06, 2006
Dell warns 1Q earnings will miss mark; shares tumble – May 08, 2006
Apple passes Dell in market value – May 02, 2006
InformationWeek: Apple Mac run Mac OS X, Windows, and Linux; Dell and HP should be concerned – May 01, 2006
Dude, you got a Dell? What are you, stupid? Only Apple Macs run both Mac OS X and Windows! – April 05, 2006
Apple Mac is #1 in European education market, pushes Dell down into second place – February 03, 2006
Steve Jobs emails Apple team: Michael Dell not the best prognosticator, Apple worth more than Dell – January 16, 2006
Dell CEO: Apple can’t just have one product and then say they’re the innovative leader of the world – February 22, 2005
Dismissive Dell CEO not impressed with Apple Mac mini, calls iPod a ‘one-product wonder’ and a ‘fad’ – January 17, 2005


  1. I’m quite sure SJ has no intentions of EVER licensing Mac OS X to anybody. They tried that and it’s just no good. Plus, when Steve came back he said that was not a strategy he’d ever follow.

    Bye bye Dell. In the words of the great band Queen: “Another one bites the dust”.

  2. Connor MacBook,

    Since IBM left the PC marketplace to Lenovo, Apple is probably the most valuable/profitable personal PC company in the market, given that much of HP’s business is actually corporate and/or server-based and a significant percentage of what’s left is based on printers and cartridges.

    Dell is next down the food-chain, although Sony (who are a nominal player in the PC world) is starting to challenge them in terms of market cap.

    As someone wrote yesterday, market share is meaningless unless its profitable.

    Maybe Mikey should have thought of that fact as he relentless beat all of the value (real or perceived) out of the WinDell marketplace.

  3. Reminder: Apple will never license the OS.

    Doing so would devalue the products: they would loose their uniqueness. By licensing, they would have to support whatever crap Dell decides to put in thier machines. Apple would be faced with the same issues M$ faces in that R&D costs and time to launch would increase on OS X because there are more internal configurations to support.

    Apple knows their perception in the marketplace is as a high end, niche player. Jobs has mentioned that they are similar to BMW. They make a great product and sell it for more, because the perception is that it is worth more. So, not only would a third party license devalue the product, it would devalue the perception of Apple. Think how that might apply to Apple as it enters the living room (also remember that they aren’t Apple Computer anymore, just Apple).

    Dell can talk to Jobs all he wants, but an OS X license will never happen.

  4. Mark My Words:
    In the next 90 days Dell will break existing agreements with state and local governments for all new plant expansion and construction in the United States, announced or not, and begin shifting assembly to China pr at least Mexico. Within 180 days, you will hear of massive layoffs at Dell’s US assembly operations with a shutdown as soon a Chinese production is up to speed.

    The only people I feel sorry for are the workers who will lose their jobs, Dell as a company and the morons running it can go pound salt.

  5. I think you discount the linux offering too much. There doesn’t look like there is much demand for Linux right now, mostly because people don’t like to install their own operating systems. Even MS know most of their Windows sales come from OEM not Cardboard boxes.

    I think the demand for not-Microsoft is be bigger than you think, and people are seeing that. This is one of the biggest reasons people move to mac. Linux might stand a fighting chance if Dell follows through with their plans.

  6. Now that Windows is mostly bloatware and overly priced, what are all of these poor HW providers to do? If the best result from billions of dollars in R/D that Microsoft can provide is Vista, then these poor folks are doomed. If I were in their shoes, I would spend some serious time thinking about a “Plan B” for an OS. If not Linux, then see if OS/2 or Be can be brought back from the grave.

    Not that I would use them myself, I’ll stick with my Mac. ” width=”19″ height=”19″ alt=”wink” style=”border:0;” />

  7. It’s no surprise Apple is outdoing Dell in both profit and market cap. Apple’s desktops are better; its laptops are better; its media players are better; it’s small server is better; its RAID solution is better. And its customer service is *way* better!

    As to Apple licensing OS X to others: To Dell, never. (For Apple and Steve, it’s personal.) But there’s a way to bring HP into the picture. HP could take on some manufacturing responsibility for Apple product, but that product will carry *only* the Apple name. HP would resell that and other Apple products through its own web sites. HP would migrate its enterprise tools (server, network and printer monitoring especially) to OS X. HP would sell and support Apple products into the enterprise channel. I think it would be a mutually beneficial arrangement.

  8. “In the next 90 days Dell will break existing agreements with state and local governments for all new plant expansion and construction in the United States, announced or not, and begin shifting assembly to China pr at least Mexico. Within 180 days, you will hear of massive layoffs at Dell’s US assembly operations with a shutdown as soon a Chinese production is up to speed.”

    They have no choice but to do this. Their business model and supply chain was perfect for the PC market of 5 years ago, where the ability to customize allowed them to meet the needs of many buyers at many price points. However, with a lot of the underlying technology and features in PCs becoming standard (and cheap), why do you have to run a specialized factory to make a computer for someone who wants to save $5.00 by deleting a USB port or modem?

    Since the marginal cost of most of the items that Dell allows you to pick off a menue is rather small today, you are best off including most of them into a standard config and streamling production (which Apple did years ago, and HP has done as well in the past few years).

    I think that the massive decline in consumer sales by Dell is also an indication that consumers can’t stand having to make the number of choices that Dell forces them to make in the buying process. What’s even more irritating is that you can put the same configuration into the system at different points during a day and get a different price each time. I think massive changes are coming at Dell, starting with outsourcing of a lot of manufacturing.

  9. I’m sorry, but Linux will never make it to the consumer/home arena except for those of uber geeks and techies (maybe 1-2% of the market). Microsoft will continue to lose ground steadily in that area though to OS X for the foreseeable future. I’d be surprised if Apple doesn’t have close to 10% of the consumer/home market already.

    In the enterprise however, it’s a whole different story. Microsoft’s imperialistic licensing policies are going to continue to drive more and more businesses to Linux, and not just when it comes to servers, it will start spilling over to workstations more and more too. Apple will begin to make some progress in that area as well, but Linux will do better there unless things change drastically and Apple decides to make a real enterprise push.

  10. with 14.4b in rev. and only 674m in profits, does this mean they will close down some of their plants? I live in NC and they just open one a little of a year ago. what do you think might happen?

  11. I agree that Apple has already made huge strides in the consumer market, and a current 10% share of that market is probably accurate.

    When you hear news of Windows having a 90% market share or whatever, and that Apple is only sitting at about 5%, that is a combination of all systems sold, both consumer and enterprise, it’s never broken down to show the split between the two.

    We all know that the enterprise is virtually all Microsoft based for now, so Apple’s numbers are almost all coming from the consumer market. So if Apple has only about a 2% share of enterprise, they must have about a 10% share of the consumer market in order to be at a 5% share overall.

    The problem for Dell is that they sell a ton of dummy terminals and workstations to enterprise, but their sales to consumers are shrinking rapidly. And there isn’t nearly as much money to be made in selling a cheap dummy terminal to a business as there is in selling a high end desktop or a notebook to a consumer.

    And that’s precisely why it takes twice as much revenue for Dell to generate half as much profit as Apple. That trend is only going to continue.

  12. Apple hasn’t broken down it’s sales figures for different sectors.. and I wonder what the reason is.. I’ve never seen it reported anywhere. The only sector I’ve seen reporting Apple sales vs other PCs is education.

    I’d honestly be shocked if Apple didn’t have close to 10% of the consumer segment now and I expect the % to be higher among consumer purchased laptops.

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