MIKE DELL FOUNDER RETURNS AS CEO !

[Anonymous]

Dell’s founder returns as CEO as Rollins quits
Facing
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
Dell’s
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
In
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
Internal
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
control.”

[Author]

February 2, 2007 at 11:41 AM