Dell has tall order to meet as CEO Rollins is canned

By Kate Evans-Correia, News Director 02 Feb 2007 | SearchCIO.com

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Round Rock, Texas-based Dell Inc. announced Wednesday that Dell will assume the duties of CEO, effective immediately. The 41-year-old Dell, who will retain his duties as chairman of the board, will replace Rollins, who was named CEO in 2004.

Most likely what happened is that Michael just didn't think that the job was getting done. Gordon Haff senior analyst, Illuminata Inc.

During a press conference in September, Dell adamantly expressed confidence in Rollins and pointed the finger at himself for the company's dismal performance.

"Any speculation is politically useless, but feel free to speculate. If you want to blame someone, you can blame me," he said at the time.

The company has been battered for some time with disappointing earnings and the recall of 4.1 million potentially flammable notebook batteries. The company has also been hammered by critics who say it failed to keep pace with a number of technology advancements, including blade servers and the use of processors from Advanced Micro Devices Inc.

The September press conference was an attempt to diffuse continued criticism and announce a commitment to a company turnaround. The company shifted its business model to include what it has dubbed Dell 2.0 (as in Web 2.0), an attempt to build on better customer relationships through services. The company said it would make a $150 million investment just to improve customer relationships. Dell has plans to open manufacturing facilities in emerging markets such as Brazil, India and central Europe, in order to get closer to customers and reduce cycle time.

Although still committed to its direct sales model, Dell said online sales will increasingly be part of its sales strategy.

But whether Michael Dell, who founded the company in 1984 with $1,000, is the magic bullet for the ailing company is a hard call. Although shares in the company rose in after-market trading Wednesday afternoon, the stock fell 42 cents, or 1.7%, to finish at $23.80 in Nasdaq stock market trading Thursday.

More on Dell Dell defends Rollins, vows company turnaround Battery recall has upside for Dell

In addition, there are legal issues. On Wednesday, a class-action lawsuit was filed in the U.S. District Court in Austin, Texas, alleging that Dell improperly accounted for hundreds of millions of dollars in payments from its longtime partner Intel Corp.

"Dell has lost its luster and it's been struggling along for a while now," said Gordon Haff, senior analyst at Illuminata Inc. in Nashua, N.H. "And while it's always a little hard to say what went down from the outside looking in, mostly likely what happened is that Michael just didn't think that the job was getting done."

Haff said the company's fundamental business model isn't in question, but rather the way it has been executed.

But analysts say replacing a CEO, even with someone as high-profile as Dell, is risky. Dell, which is valued at more than $55 billion, faces dipping stock prices and increased competition from rival Hewlett-Packard Co.

Although Dell managed to hold on to its No. 1 position worldwide, the company's PC market share dropped 8.7% -- from 16.4% to 13.9% in 2006, according to a recent report from research firm Gartner Inc. But rival Hewlett-Packard is steadily inching closer, growing 23.9% during the same period and selling nearly 11.7 million PCs -- over 2.2 million more than it did during the fourth quarter of 2005.

Still, others say, if not Michael Dell, then whom?

When a company hits some very challenging times, as Dell has, you put the company in the hands of the people who can handle it, said Charles King principal analyst at Pund-IT Research in Hayward, Calif. "If that doesn't turn out to be the case, then you go to a known leader."

This is the guy who led the company to success before, and now he's back in charge, King said.

"As dramatic as things have been, the company is not on the verge of collapse," he said. "Mike Dell has done it before and I expect he can do it again. He's a smart guy. He's smart enough to know what he knows and smart enough to bring in help."

Let us know what you think about the story; email: Kate Evans-Correia, News Director

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