• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

Dell Misses, Rollins Quits, Dell Returns

Posted on: Thursday, 1 February 2007, 09:00 CST

Michael Dell has returned to the CEO role at Dell Inc, as his erstwhile replacement Kevin Rollins abruptly quit after turning in another bad quarter.

Rollins' three years in the top spot at Dell had been rocky, culminating in a terrible 2006 in which the company lost its market share crown, repeatedly missed targets, and saw its accounting come under Federal investigation.

His resignation was implicitly connected to the company revealing that it has missed Wall Street's estimates for fourth-quarter revenue and profit, but the move is unlikely to settle concerns about the probes into Dell's accounting.

Rollins, who was president and COO before taking over the CEO reins from Michael Dell in March 2004, has also left Dell's board of directors, effectively immediately.

Ironically, the CEO handover three years ago was viewed by some on Wall Street at the time as a natural progression - an entrepreneur founder being replaced by a seasoned business manager.

Dell framed yesterday's changes in similar language, with Michael Dell saying in a statement that he is "enthusiastic about Dell 2.0", apparently trying to align the company with the youthful exuberance of the current "Web 2.0" tech economy in Silicon Valley.

The company's recent performance under Rollins has been hit by missteps and Dell's share price has suffered as a result. In 2003, he took over a company trading around the $35 mark, and while he steered it well over $40 early on, it has traded under $30 for most of the last 12 months.

Last year, the company ended its longstanding habit of reporting double-digit revenue growth, instead turning in growth of 6%, 5% and 3.5% in the first, second and third quarters. It missed its second-quarter targets due to aggressive but badly judged price cuts mid year.

Analysts polled by First Call had expected revenue for the just-ended fourth fiscal quarter of $15.3bn, which would have been growth of about 7%, but it seems now that Dell missed that target.

After seeing earnings go down for the first time in August last year, an increased focus on the bottom line over unit shipment growth caused the company's PC market share to slip in the second half of the year, giving rival Hewlett-Packard Co the market leader crown.

IDC figures show Dell barely clinging to the 2006 market leader position, with a 17.1% share versus HP's 17%. Gartner's numbers show HP had a 16.3% worldwide market share in Q3, versus Dell's 16.1%. In the fourth calendar quarter, IDC numbers show HP with 18.1% and Dell with 14.7%.

Dell, along with other PC makers, also suffered from a high-profile battery recall during the second half of the year, following a handful of well-publicized occasions when laptops exploded.

The company is also under Securities and Exchange Commission scrutiny over its accounting. Unlike the vast majority of current SEC probes, Dell's is believed to relate to revenue recognition, rather than the dating of stock option grants.

Clay Sumner, an analyst at Friedman Billings Ramsey & Co, said in December that he believes Dell has been accounting for its warranties incorrectly, and that may have something to do with the probe.

But Dell executives haven't talked publicly about its financial situation since its August 2006 second-quarter earnings call. They took the unusual move of not holding a conference call in November to talk about third-quarter earnings, and have not spoken at analysts meetings since last summer.

The company has also not filed its regulation 10-Q quarterly reports with the SEC since the first fiscal quarter 2006 report, an infraction that leads to delisting warnings. Dell expects to have these forms filed in mid-March.

The CEO switch has echoes of Steve Jobs returning to the helm of the company he founded, and Dell, like Apple, has its fair share of problems. But it remains to be seen whether Michael Dell can pull a Jobs and return Dell to its glory days.

Source: Datamonitor

More News in this Category