Dell's grand plan a dud with analysts; Where's the detail?

Dell's grand plan a dud with analysts; Where's the detail?

Summary: A two-day Dell powwow with Wall Street this week was largely panned as being short of details.On Wednesday and Thursday Dell met with analysts and disclosed that it would lay off more than the 8,800 it had projected and outlined plans to save about $3 billion over three years.

SHARE:

A two-day Dell powwow with Wall Street this week was largely panned as being short of details.

On Wednesday and Thursday Dell met with analysts and disclosed that it would lay off more than the 8,800 it had projected and outlined plans to save about $3 billion over three years. The bright side: "Our takeaway was that management does understand what needs to be done, which is a big positive compared to efforts in '05-'07," said Cowen analyst Louis R. Miscioscia. The rub: "Many questions were still left unanswered," he said.

The consensus view is that Dell is a wait and see company. Dell's plans look fine on paper, but there aren't enough details. Meanwhile, IT spending is questionable. Toss in the fact that Dell will essentially run two business models--its core direct sales business and a channel effort--in parallel and the risk increases. Dell's supply chain is also being run in parallel: Dell will manufacture and outsource a bit. Can you really squeeze out efficiencies when you're running two different business models that aren't integrated?

That question is one big reason why W.R. Hambrecht downgraded Dell shares to a hold from a buy. In a report, W.R. Hambrecht analyst Matthew Kather wrote:

We are downgrading Dell's shares to Hold from Buy due to the following reasons: Dell did not give a convincing argument regarding the ability to manage, overcome and optimize the channel conflicts that are expected to emerge in changing from direct to much for VAR business, and retail business. They appear to be in denial of the channel conflicts. Cost cutting likely not enough and likely not all of $3B will fall to bottom line. Headcount reduction will have to be significantly more in our opinion. Services strategy was not concrete enough, unclear how much Dell plans to compete with its current VAR clients, and how it will 'white brand' services to the enterprise. The opportunity to accelerate growth is clearly there in our view, but the Company is enormous and it is going to take time (2+ years) to learn how to manage their new channels, and the financial model (COGS, Opex) does not show enough leverage yet in our opinion.

One of the big worries among analysts is that Dell is underestimating the difficulty of executing a multi-channel, multi-supply chain business. HP has had years to get the drill down. Dell is a newbie.

This chart is more complicated in the real world:

dellsupply.png

And this isn't a picnic either:

dellsupply1.png

Merrill Lynch's Jeff Fidacaro notes:

Dell identified its largest opportunity to improve margins from designing platforms per price bands, a departure from its customizable configurations. This includes implementing a multiple supply chain strategy including increased usage of manufacturing partners (ODMs and EMS).

Simply put, Dell has more than a few moving parts to manage.

It doesn't help matters that Dell didn't disclose how much of its $3 billion in cost savings will flow to the bottom line. Will earnings get a boost? Or will the savings be reinvested? We just don't know at this juncture. It took three years for Dell to schedule an analyst meeting and the least the company could do is serve up a little more detail.

Topics: Enterprise Software, CXO, Dell, Software

Kick off your day with ZDNet's daily email newsletter. It's the freshest tech news and opinion, served hot. Get it.

Talkback

23 comments
Log in or register to join the discussion
  • Dell has...

    kind of backed themselves into a corner. They rose to power off their low to mid end machines for consumers, and making a good line of machines for the corporate sector. Whenever big competition came along, they would just drop their prices. Which started the PC price wars of the past few years. But now they can't do that. And with HP putting a major dent in their sales, they would have to raise prices to keep the same income level.

    However, I don't think cutting those jobs is going to save them as much as they think. They claim 3B, I am sure they wont see all of that. And with fewer employees, the work load gets increased on the remaining employees, which then causes quality and service to degrade. I would say that they do need to downsize to bettter match todays market, but thats a lot of jobs.
    Stuka
  • Dell gave the analysts what they wanted...

    ... including losing valuable employees and reducing what's available to customers. That's how any company should assure future growth, right?!

    Then the ungrateful analysts ask for a plan. Dell would have to itemize how the company has been damaged by giving the analysts what they want. And that would not please the analysts.

    A company beset by analysts has to develop a soothing story. If the sun must rise in the west to make that story true, the analysts will not be bothered. Someone at Dell is guilty of excessive realism, while others are guilty of surrender to irrationality. The two parts of the company should talk so that the reasons for guilt can be maximized.
    Anton Philidor
  • I gave up on Dell...

    some time ago. And they are only getting worse.

    When bottom line comes before product, bottom line is sure to tumble further. Only way to assure the bottom line is through attention to customer and product. Dell has forgotten both.
    bjbrock
  • You want to improve Dell? Here's how:

    1. Stop sucking up to these stupis analysts. Their first reaction to everything is to reduce headcount. Let me tell you, that sounds good on paper, but in real life it makes good employees run for the nearest exit, and attrition can accelerate beyond control. Good morale among employees can often result in a better bottom line than if you held them over a barrel.
    2. Don't overreach. If you don't have the resources to achieve a goal, don't even start toward it. How many companies has Dell acquired in the last year? 5 or 6? I lost count. If you don't have money, then why spend what you don't have?

    I'm sure there are others.
    Carrion
    • Circuit City. Enought Said

      [i]"1. Stop sucking up to these stupis analysts. Their first reaction to everything is to reduce headcount. Let me tell you, that sounds good on paper, [b]but in real life it makes good employees run for the nearest exit, and attrition can accelerate beyond control.[/b] Good morale among employees can often result in a better bottom line than if you held them over a barrel."[/i]

      Very well said.
      ye
  • RE: Dell's grand plan a dud with analysts; Where's the detail?

    I think the start of their downfall was when they outsoured customer service to India. I had a few bad calls to the India call center who couldn't help me and who I couldn't understand. Now my company buy's HP, I always get someone I can understand and they always help me.
    jeremyj
  • AT&T announced new changes in Yahoo

    I have my truth sensing stretched to the maximum when I read the news.(no kidding in my AT&T newsletter)
    BALTHOR
  • Dell headed the Gateway path

    Looks like Dell is headed the same path Gateway took not too long ago. A very long time ago, Dell made good products. Somewhere along the way, it dropped product quality, offshored support except for large customers, and lost its fan base among IT people. Gateway did the same thing, and look where Gateway is now--Acer picked it up for a song.

    I can still remember when Dell made fun of the retail channel. Look where Dell is trying to find salvation now.

    Dell, I hope you disappear from the face of the earth. I won't miss you.
    rosanlo
    • spot on

      And Dell SUCKED in the retail channel. The computers were overpriced and underpowered. They lacked features you could get in PCs built in Mom&Pop computer shops.
      pikeman666
    • Totally Agree...

      When I was reading the article and knowing what the end-user has to go through.
      Dell had it right when they were strictly making custom systems with a 3 year warranty (not the standard 1 year now) and was not trying to compete at the low end of the spectrum. Once they chose that path they became another "Gateway".
      dunn@...
  • Dells real problem

    There simply is no "value added". You get a generic set of components in a generic package.
    No_Ax_to_Grind
  • Why did they employ those people?

    The 3000 or so who are to go? Can you imagine a company in a highly competitive sector taking on people it doesn't actually need? Even the public sector (government and civil service) doesn't do that.
    So my take is that losing those positions is going to make the company dysfunctional and inadequate. Internally there will be chaos, things not getting done that need to be done. I agree with the analysts but I'd go a bit further and rate the stock as "Sell".
    peter_erskine@...
    • If they're in India, I say, "Good riddance"

      I'll admit I don't know how many people Dell employs directly or indirectly in India for their outsourced customer support, but I'd be willing to bet they could regain at least some of their lost reputation by bringing that function back to the U.S.
      DrMicro
      • They are in older facilities in Round Rock....

        And the last figure I saw was 8800 employees to be laid off or through attrition.
        As the article indicated they will be doing more outsourcing of manufacture, which is a new a slippery slope for Dell.
        Unless you are one of their larger Enetrprise customers purchasing OptiPlex desktops and their PowerEdge Servers you will get "John Smith" in India. Their Indian outsourced support is laughing all the way to the bank.
        dunn@...
  • I gave up on them

    Bought my last Dell just before
    they went cheap - paid the price
    that supported US based customer
    service and got some 3rd party
    company in India. After a week of
    misery I made the decision to get
    a new computer. I chose a Mac
    simply because they maintained
    sufficient gross margins to provide
    local support. As a one man
    company I can't afford the
    cheapest with the poorest service.

    In terms of Dell working the retail
    channel I don't know if they have
    the margins to make a strong
    offering. They certainly can't
    match Apple Stores and the
    kiosks were a failure.
    Ken_z
  • One trick pony

    I've listed Dell's multiple failings in other posts, no need to reiterate them here.

    I don't wish any American company to fail; if nothing else the workers don't deserve it. But if Dell wants to rebuild, they have to do it in a different way. All that they told the analysts was that they would cut their way to profitability, and copy some of HP's successful tactics. That's not a way to get back in shape.

    Apple is "the innovator". HP is "one stop shopping". Dell could be "Best customer experience".

    1) When you take a Dell out of the box, it works. It doesn't bombard you with sales pitches, Microsoft self-love screens, or deadweight crapware. It starts up and is ready to do YOUR work, not their marketng department's work.

    2) The software could actually be tested against the hardware configuration for suitability and performance.

    3) When you call them for support, you talk to somebody that has actually seen and used the model you have, not just a script of generic questions.

    4) Customer Support's job is to support customers, not close calls.

    5) Dell learns how to ask what people want. I get surveys out the ying-yang from HP and IBM, but nothing from Dell. I get a call from an HP exec once a year asking about our printing trends, even though I'm not the CIO.

    6) Dell learns that retail and direct are still connected by one word: "Dell". If they futz up retail, it will surely kill the whole company, not just the retail side. That was Gateway's downfall.
    terry flores
  • Dell Capitulation = why I hate Dell

    1. Dell's advertising focuses on tailoring your PC to your needs. Dell is the expert in this area and fine-tuned the process. This is being wholesale thrown out the window. Now they are a generic box maker.
    2. Michael Dell took over CEO more than 14 months ago. The staff cuts are about a year too late in my opinion. If this is the direction they want to go, a lot of cost-saving is way too late. Now it will need to be deeper and more painful.
    3. Moving parts don't work tagether. Let's see, we've got Alienware for high-end gamers, Linux for low-end, custom color laptops for high-end, outsourced help desk to lower cost, a blog and support wiki to show they care, selling in stores e.g. Walmart to make it convenient, then disbanding the Dell kiosks, the list goes on. It's just a big mess.
    3dguru
  • Dell's product quality is grabage.

    Take a look at their new XPS 420.

    Mad in China - piece of junk.

    Has plastic "Dell" sticker that was glued on.

    Flimsy.

    Stay away.
    Smart_Neuron
    • Mad in China?

      Pretty much everything is "mad" in China these days, so
      that's not an indication of quality. The problem is in quality
      control; apparently Dell's QC is subpar.

      Dell made their bones on selling cheap and reliable
      (enough) computers with good support. I think they've
      been trading on their reputation for a while now, and have
      pretty much driven their brand into the ground. If they can
      turn around the customer support they'd be doing a lot to
      reverse the disintegration of the Dell brand.
      Marcos El Malo
  • Something I never understood....

    Dell had a nice thing going. They bought components from the cheapest suppliers, assembled them in the cheapest manner, and wrung the last dollar out of their supply chain to make Micheal Dell a very wealthy man.
    Dell never invented anything, they weren't an innovative company, they waited until someone else proved thre was a market and then went and found the cheapest components......
    Somewhere along the way, someone decided that they shouldn't compete with Gateway and eMachines and could compete with IBM and HP and then they needed to differentiate cheap components as enterprise-class systems.
    Analysts have a nasty habit of ruining good things and have nearly ruined American business in the process. We used to look at profits and losses and not so much about growth, now it's growth and not so much about profits and losses. Almost the worst thing a company can have is a large profitable brand that is stable.
    SWMCinci