Hard times seem far from over for Dell (DELL). The company’s Chairman Michael Dell and Chief Executive Officer Kevin Rollins are encountering problems on all fronts.
Trouble started with the Sony (SNE) laptop battery fiasco back in 2006, which prompted the company to recall over four million units. More recently, management decided to terminate its agreement with Intel (INTC) and use Advanced Micro Devices (AMD) chips instead. We believe this could impair consumer confidence, especially since rumblings of customer dissatisfaction are getting louder.
Further, one of its most successful business strategies is also not working well. Dell used to attract clients by displaying cheap products on the company website. Customers browsing the website would end up spending an additional $2500 on PC accessories.
This scenario is changing rapidly since PCs with enhanced processors and accessories are now easily available at stores. Rivals HP (HPQ), Lenovo (LNVYG) and Acer have also started pricing models at competitive prices, which is increasing competition for the company.
Despite these pressures, Dell refuses to adapt a business model to suit current market dynamics. While most of its competitors have attuned themselves suitably, Dell continues to stick with its supply chain management policy and direct sales model.
Again, management’s decision to cut costs is hurting customer service and product quality. Some customers are of the opinion that rival products are cheaper, more user friendly and come with better customer service.
Employees are also getting increasingly dissatisfied. Some employees believe that the company’s work culture is undergoing sea change, with the fun element receding gradually. Rumor has it that CEO Kevin Collins could soon part ways with Dell. If it loses key executives at this critical juncture, it would be a definite setback for the company.
The picture looks worse when we consider the weakness in recent results and the Securities & Exchange Commission’s (SEC) probe into Dell’s accounting policy. The company should restructure its business model in line with changing market dynamics and focus on employee satisfaction and product quality.
The company is trying to capture the Indian market, which could be an important step in the right direction. We believe that a revival in customer confidence will be the key to Dell’s success in the days to come.
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