Dell Talking Again After Audit

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Dealing With Turnover, Too

Not that the road ahead will be easy. Dell's resurgent rival, Hewlett-Packard (HPQ), which in 2006 surpassed Dell as the No. 1 supplier of PCs, outperformed analysts' expectations during its fiscal third quarter (see BusinessWeek.com, 8/17/07, "HP: 'Firing on All Cylinders'"). An SEC investigation into Dell's accounting remains under way. And Dell has struggled with lower profits, turnover in the executive suite, and slowing growth. "Now they can go back to focusing on HP," says Rob Enderle, principal of technology industry consultancy Enderle Group, which counts Dell as a client. Dell's comparable performance won't be known until Aug. 30. "HP blew the doors off," Enderle says.

Dell has had to manage the accounting investigation while new management tries to effect a turnaround. On Jan. 31, Michael Dell retook the reins as CEO, dismissing chief executive Kevin Rollins. In December, 2006, Carty, a Dell board member and former chairman and CEO of American Airlines parent AMR (AMR), became CFO after the resignation of Chief Financial Officer James Schneider. The company is trying to ignite growth and profits, and reinvigorate Dell's all-business brand in a PC market where much of the strength is coming from sales to consumers (see BusinessWeek.com, 3/2/07, "Dell's Doubtful Turnaround").

During its first quarter, which ended May 4, Dell said revenue increased by less than 3%, to $14.62 billion, and net income declined to $759 million, compared with $762 million the prior year. Dell plans to file a preliminary second-quarter report Aug. 30, and file its annual report for 2007 in early November. Shares of Dell closed 37¢ lower at $25.93 Aug. 16 in advance of the disclosure. The shares are up more than 3% in 2007, following a sharp decline in 2006.

Lawyers Dispatched

In its press release, Dell said the SEC probe of Dell's accounting practices, which began informally exactly a year ago, continues. In November, 2006, the company delayed filing its annual report, and announced the SEC had launched a formal investigation into its finances (see BusinessWeek.com, 11/16/06, "Dell Delays Amid the SEC Probe"). Dell's own 375-person, $135 million investigation began in August, 2006—the law firm Willkie Farr & Gallagher deployed 125 lawyers to Dell offices around the globe. The attorneys interviewed 146 Dell employees. Meanwhile, 250 accountants from KPMG combed Dell's books.

The upshot: a housecleaning that's led to the dismissal of perhaps two dozen employees, according to Enderle, with more dismissals to come. Dell also appointed employee Thomas Sweet as its chief accounting officer, with worldwide supervision over accounting and reporting. The company plans to overhaul its accounting controls, and buy new computer systems to cut more manual bookkeeping out of the process.

Dell's announcement dwelled on bad behavior that occurred in the past. Its shareholders can only hope the company now has more energy to devote to its uncertain future.

Ricadela is a writer for BusinessWeek.com in Silicon Valley.