Tuesday, May 09, 2006

Dell slows again! What's really going at the No1 PC maker?

Dell, the world's largest computer maker, warned it would miss its fiscal-first-quarter earnings and sales forecasts, blaming the slip on pricing actions taken to revive sales growth.

Dell said it would earn 33 cents a share for its fiscal first quarter ended May 5, down from its original forecast of 36 to 38 cents a share. It also revised its revenue to $14.2 billion, down from a range of $14.2 billion to $14.6 billion. It pinpointed the second half of the first quarter as the time when it got aggressive on pricing in a bid to increase sales.

Dell seems to be making a habit of missing forecasts and also seems in a dangerous spiral when it comes to losing market share.

So what's really going on at Dell? The challenge seems to be two fold for the company:

1. They face increased competition in the corporate sector thanks to a rejuvenated HP and a much stronger Lenovo post their merger with IBM's PC business. Apple may become a more formidable competitor as well now that they have moved their computers to Intel chips.

2. The consumer market for PC's has taken off thanks to the PC becoming an essential family electronics device to drive the Internet as well as home entertainment. Unfortunately Dell is weak in the consumer market as they have always focused on the corporate market.

Dell's challenges feel to me like Nokia's about four years ago when they started losing market share and missing forecasts thanks to stronger competition and shifting consumer trends. It took Nokia a couple of major reorganizations, a change in strategy and a raft of new product launches before they got back to growth mode a few years later.

It will probably prove the same for Dell. They need to accept that the PC market has changed and split for ever between corporate PC's/laptops and consumer PC's/laptops. Consumer PC's need to be about entertainment and corporate PC's/laptops about price and performance.

Dell need to go after the consumer market with a raft of new higher end computers and they need to make their producst more value added and sexy. Dell also need to move up the corporate chain and dominate in servers and get into services.

They may need to reorganize into market facing divisions and learn a whole load from the likes of Acer and Apple. They should also consider a transformational merger - Sun Microsystems could be an interesting candidate.

It may well take a while, but Dell can get back to growth mode. But they will need to be bold and willing to throw out conventional thinking and assumptions.

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