Dell's Do-Over: Can He Go Back to the Future?

Posted by: Cliff Edwards on October 16

Michael Dell’s makeover of what once was the largest computer maker in the world has been characterized by fits and starts. Company insiders tell BusinessWeek he’s been moving very quickly since he moved back into the CEO suite in 2007, while critics contend he isn’t moving fast enough.

The real truth seems to be somewhere in between, but one thing is clear: Dell the company will face increasing pressure to transform itself even as sales in the pc industry improve. The latest quarterly figures from researchers IDC and Gartner show that Dell continues to lose ground to rival Hewlett-Packard. And Taiwanese maker Acer for the first time surpassed Dell to take the No. 2 position in global pc sales.

To be sure, part of the reason is that Dell has been trying to boost profits, and in doing so is much more willing to cede market share to rivals. The numbers show why: Back in 2000, when the average selling price of PCs was $1,469, Dell made $338 more than competitors on every one sold, according to researcher IDC. In 2008, when the average selling price was $849, Dell made $20 less than the industry average.

But in the cutthroat commodity pc business, scale is crucial to maintaining profits over the long term. The more pcs and servers you sell, the more you can squeeze suppliers to offer your company the best costs.

Coming out of the downturn, Dell is faced with maintaining that legacy business while trying to move upstream to more profitable businesses such as managing other companies’ computers and datacenters, offering tech consulting and delivering cloud computing services. That means Dell will have to step up research and development, and acquire more companies that will help it achieve its goals.

Can they do it? Michael Dell thinks so. But it looks like he’ll have his hands full over the next two or three years remaking the Austin (Texas)-based company.

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