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 user 2007-02-02 at 11:41:00 am Views: 38
  • #17683

    Dell’s founder returns as CEO as Rollins quits
    a deepening strategic quandary at the personal-computer giant he
    founded more than two decades ago, Dell Inc. Chairman Michael Dell took
    over the role of chief executive at the company, replacing Kevin
    Rollins, his former protégé.Mr. Dell’s move to reassert control over
    the company he transformed from a start-up in his college dormitory
    room into one of the world’s largest PC makers, is a sign of the crisis
    facing Dell.The Round Rock, Texas, company — known for its business
    model of selling PCs directly to consumers and business clients over
    the phone and Internet — has stalled in the past few years as buying
    behavior in the PC world has changed drastically.Mr. Dell’s renewed
    day-to-day involvement in the business may do little to solve the
    company’s problems, at least in the short term. In announcing the
    shake-up, the company also disclosed it expects its earnings and
    revenue for the fiscal fourth quarter ending this week to fall short of
    analysts’ estimates.Track Dell and other stocks on the move. Most
    actives, gainers and losers and the full Markets Data Center.Dell’s
    reversal has taken place largely since Mr. Dell handed the CEO reins
    over to Mr. Rollins in 2004. Mr. Dell remained chairman of the board, a
    position he will continue to hold. In an interview, Mr. Dell largely
    declined to comment on Mr. Rollins’s departure. Mr. Rollins couldn’t be
    reached.”Kevin has been a great friend and colleague for many years and
    made huge contributions for the company during a critical period. …I
    felt that it was a critical time for the company and having unified
    leadership would be the right approach,” Mr. Dell said. The 41-year-old
    executive added that his role as CEO would be a permanent one, and not
    an interim measure.Yesterday’s management shake-up “doesn’t change
    Dell’s problems,” said Ken Smith, director of technology research for
    Munder Capital Management. “Michael Dell or whoever you put in that
    role I think is going to struggle with the same issues.”

    Customer Preferences
    market share has suffered in recent years as customer preferences have
    changed and competition has intensified. Much of the recent growth in
    PC demand has come from consumers buying laptop computers at
    electronics retailers like Circuit City Stores Inc. and Best Buy Co.
    Dell, which largely focuses on selling desktop computers to businesses,
    has missed out on the boom.Meanwhile, Asian rivals like Lenovo Group
    Ltd. of China and Acer Inc. of Taiwan have gained ground in the global
    market, and a resurgent Hewlett-Packard Co. recently surpassed Dell to
    become the world’s largest PC maker in terms of units sold, according
    to some research firms. The PC industry remains cutthroat. Pricing
    pressure is keen, and new products quickly become commodities.By
    helping keep costs low, Dell’s direct-sales model used to give it a
    price advantage over competitors such as H-P, but as H-P has
    restructured and the average selling prices of PCs have plummeted,
    Dell’s aggressive pricing hasn’t brought it additional growth. The
    company has since said it is focusing more attention on profits, rather
    than pricing.Mr. Dell indicated in yesterday’s interview that he didn’t
    plan to change Dell’s strategic model and would stick to selling PCs
    directly, adding that there are opportunities to innovate on the model.
    “Dell has always had a strength in its supply chain, and I think there
    is an opportunity to do even better there,” he said.Dell isn’t the
    first PC maker that has struggled after its founder vacated the CEO
    spot. But the track record of the founders who have returned to their
    old posts has been mixed. Steve Jobs, who reassumed the role of CEO at
    Apple Inc. in the late 1990s, following more than a decade as an
    outsider, rejuvenated the Cupertino, Calif., company by moving it
    beyond its computing roots and into the broader market for consumer
    electronics. On the flip side, Ted Waitt, the founder of PC maker
    Gateway Inc., was unable to arrest the company’s slide after he
    returned to the helm there in 2001.Mr. Rollins’s departure from Dell
    represents a sharp turnabout for the 54-year-old executive. As recently
    as late last year, Mr. Dell had publicly endorsed him as CEO. But under
    Mr. Rollins, Dell has faced a growing catalog of problems.The computer
    maker has missed several sales or earnings projections over the past
    few quarters. Last year, Dell also grappled with the recall of several
    million defective batteries in laptop computers. And the company
    disclosed in August that the Securities and Exchange Commission was
    looking into its finances. While the company has given few details, it
    has said the inquiry is related to “accruals, reserves and other
    balance-sheet items.”The company delayed reporting its most-recent
    quarterly results, attributing the delay to the “complexity” associated
    with investigations by the SEC and the U.S. attorney for the Southern
    District of New York.

    Refresh Its Ranks
    recent weeks, Dell has moved to refresh its executive ranks. In
    December, Dell said Chief Financial Officer James Schneider was
    resigning and would be replaced with Donald Carty, a Dell board member
    and former chief executive of American Airlines parent AMR Corp. Dell
    also said last month that Senior Vice President John Medica would
    retire in the next few months.In the meantime, Dell has brought in new
    blood, including Steve Schuckenbrock, a former co-chief operating
    officer of Electronic Data Systems Corp., and executives Rick Becker
    and Richard Conrad from H-P.Mr. Rollins, who first joined Dell as a
    Bain & Co. consultant, was the architect of the company’s rapid
    growth in the mid-1990s. He won Mr. Dell’s respect by crafting a
    marketing strategy around individual business units, such as health
    care, state-and-local government, education, and small businesses.
    These targeted units allowed Dell to consistently outshine its
    competition in the mid- to late 1990s.They also allowed Dell to quickly
    collapse its accordion-like structure when the PC market stalled
    earlier this decade. The company was able to bounce back when a severe
    downturn forced Compaq Computer Corp. and Gateway into mergers to
    survive. Mr. Rollins was also known for persuading Dell to leave the
    retail market in 1993, arguing that direct sales were more
    cost-effective.But Mr. Rollins was also known as a stern and aloof
    manager. Early on, he was the executive who strictly enforced the Dell
    model of using cost cutting to gain market share and lift profits.
    Executives who disagreed with the approach were forced out or left.
    When the PC market slowed down earlier this decade, Mr. Rollins drove
    Dell into printers and consumer electronics, hoping to show its
    low-cost, high-velocity model could work in other markets. Neither move
    helped reignite Dell’s once-rapid growth.Investors and analysts also
    say Mr. Rollins made a mistake by not building and selling products
    with microprocessors from Advanced Micro Devices Inc., instead sticking
    solely with Intel Corp. chips. The company’s loyalty to Intel cost it
    market share in late 2005 and 2006. The company eventually relented and
    announced plans in May to begin shipping some products with AMD
    processors.Executives who clashed with Mr. Rollins felt he was sowing
    the seeds of Dell’s current problems. By forcing out those who
    championed other approaches, they said, Mr. Rollins would never be able
    to adapt to a new business model.Mr. Rollins was perceived as lacking
    the same charisma that Mr. Dell exuded. After Mr. Dell first began to
    distance himself from day-to-day operations earlier this decade, Dell
    went to great lengths to soften Mr. Rollins’s image internally. A
    classically trained violinist, Mr. Rollins dressed as a cowboy and
    played “fiddle” music at one company meeting.Mr. Dell is known for
    being a more hands-on manager, and often walked around Dell chatting
    with employees and popping into product groups, according to people
    familiar with the matter.

    Final Straw
    dissatisfaction had mounted with Mr. Rollins lately, say people
    familiar with the matter. The final straw was the fact Dell has been
    beaten so badly in the marketplace recently by H-P. “The computer
    business is the business” for Dell “and they’re losing share of the
    computer business,” one knowledgeable individual said. This person
    added that Mr. Dell had no reservations about reassuming the top
    post.In recent weeks, Mr. Dell kept his dissatisfaction with Mr.
    Rollins relatively close to his vest. A Dell acquaintance who spoke
    with him last week says he gave no hint of Mr. Rollins’s imminent
    exit.Now that Mr. Dell has retaken the No. 1 spot, “the management team
    will feel more empowered,” the acquaintance said. Mr. Dell “is more of
    a motivational leader than Kevin,” this person added. “He will bring a
    new sense of urgency to the company.”In his role as chairman, Mr. Dell
    spearheaded some of the company’s newest ventures, including its foray
    into the gaming market with its acquisition of Alienware Corp. last
    year. Outside the company, he has been involved with the Dell Family
    Foundation, a child-health and education charity, and with MSD Capital
    LP, his private-equity arm.As CEO, he is expected to try to fill the
    post of chief marketing officer. Dell has sought a marketing chief for
    nearly three years and seriously wooed three candidates. None of those
    contenders were willing to join Dell because the job description “was
    too nondescript,” says another person familiar with the situation. Dell
    officials told the prospects, “Come here. We’ll figure it out.”But with
    Dell suffering from so many problems, Mr. Dell “is going to have to
    nail things down if he wants to get top people,” added another person
    close to the matter.In a further effort to attract new blood, Dell has
    hired recruiters Spencer Stuart to fill the newly created post of head
    of its global consumer business, according to individuals familiar with
    the situation. The search, which was approved jointly by Mr. Dell and
    Mr. Rollins, isn’t expected to be affected by the CEO switch. Spencer
    Stuart declined to comment on the assignment.Chirag Vasavada,
    technology analyst for money-management firm T. Rowe Price Associates
    Inc., said that Mr. Dell’s return as CEO signals to Wall Street that
    the company is serious about improving its performance. But Mr.
    Vasavada said that for its stock price to improve, the company
    ultimately needs to increase sales and profits.Nirav Parikh, an analyst
    with Los Angeles-based TCW Group Inc., a Dell shareholder, added that
    it was “somewhat obvious that there needed to be some changes at Dell.”
    He said Mr. Dell would be closely watched to see if he follows through
    on his plans for reinvigorating the company. “He’s been there all
    along, so what he is going to do is more important than just him taking