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Dell Founder Accepts Blame for Company's Recent Woes

By Keith Regan
Sep 13, 2006 10:34 AM PT

Michael Dell, whose namesake company has seen earnings drop, market share erode and accounting questions raised in recent months, attempted to deflect the blame from CEO Kevin Rollins, saying he too is partly to blame for the PC maker's missteps.

Dell Founder Accepts Blame for Company's Recent Woes

Rollins, the former Dell COO who Michael Dell hand-picked to run the company as he stepped away from day-to-day operations, is under pressure to reverse Dell's recent slide. At an event on Tuesday during which Dell previewed a strategy to improve customer service, the founder and chairman of Dell said there has been too much focus on Rollins' role.

"Characterizations of the company's challenges as being only Kevin's are inaccurate," he said. "We believe we have a very strong team at our company."

Dell's recent spate of bad news has led to some speculation that Rollins could be on the hot seat if things don't turn around, and may be moved out by the Board of Directors in order to send a message to investors that the company is serious about plotting a new course.

"I think any press speculation on that is completely useless, but feel free to speculate because everyone else does," Dell said from the stage at the New York City event, where Rollins had just laid out a strategy billed as "Dell 2.0."

"It's not going to happen," he said of a potential departure by Rollins.

Dell called Rollins an "outstanding executive."

"If you want someone to blame," he added, "you can blame me, too."

Desperate Times?

Dell revealed in August that it was the focus of a Securities and Exchange Commission inquiry into past accounting practices, which the company is also investigating on its own. That revelation came at the same time that Dell announced earnings that fell short of forecasts and came in some 51 percent below last year's levels.

Around the same time, Dell was the first computer maker to recall millions of potentially dangerous laptop batteries, and earlier this week, the company said it would delay filing its formal quarterly financial report with regulators because of the accounting issues, a delay that could put its Nasdaq stock market listing at risk. It also delayed its annual analyst meeting for a second time and has yet to reschedule it.

Dell did go ahead with Tuesday's product preview event, with Rollins highlighting Dell 2.0, which features a heavier emphasis on customer service and long-term relationships, and less reliance on aggressive pricing as a way of winning market share.

Rollins said Dell would look for ways to grow the firm's services business, launching a customer service push known as DellConnect meant to enable the company to meet a customer's needs more quickly. Dell's services business generated about US$5 billion revenue last year, about 10 percent of the company's total sales.

Rollins said outsourcing would also be part of the new strategy, but rather than outsource customer service as it has in the past, Dell will seek to move manufacturing operations to lower-cost regions such as Brazil, India and central Europe.

Laying Down the Chips

Dell's product preview was limited, but included a look at new AMD-powered PCs, which are expected to start shipping later this week. Dell also re-emphasized its storage hardware partnership with EMC, saying it had extended an existing partnership for another five years and will incorporate Blu-ray optical disc storage technology into new products.

Rollins also emphasized Dell's commitment to invest $150 million to improve the customer service experience, which has become the source of heavy criticism for Dell in recent years.

Michael Dell's defense of Rollins may only temporarily relieve pressure on him to resolve the accounting issues being looked into by the SEC, as well as by Dell itself and now federal investigators from the Southern District of New York.

The lack of details on the accounting questions raised by the investigations worries some analysts. The longer the issues linger, the more damage Dell will suffer, Sanford C. Bernstein analyst Toni Sacconaghi said in a research note.

The quarterly report delay "further undermines management's already fragile credibility," Sacconaghi wrote. "Dell's senior management team has been under fire over the last six-plus quarters for its deteriorating financial performance and its ostensible inability to grasp the severity of the issues and put in place an effective action plan."

Dell's recent performance may seem more dire than it is because of the strong resurgence of Hewlett-Packard and its new CEO, Mark Hurd, Gartner analyst Martin Reynolds told the E-Commerce Times.

"Things are going HP's way recently and by contrast, even though Dell appears to be holding onto market share, things look worse in comparison," he said.


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