Michael Dell's return no slam dunk

Will Michael Dell's second act at his namesake company look like Steve Jobs'? Or Ted Waitt's.

Will Michael Dell's second act at his namesake company look like Steve Jobs'? Or Ted Waitt's.

The computer industry offers two recent examples of what happens when prodigal sons return to the PC companies they helped create.

Steve Jobs' experience with Apple is one for the corporate record books. Apple was a mess before Jobs returned in 1997. He launched the iPod, focused the company on design and created a marketing powerhouse. Apple has evolved so much it could drop the "Computer" from its moniker.

Ted Waitt's experience at Gateway is a different story. Waitt launched Gateway, created this folksy appeal and left the company in decent shape in 1999. Waitt handed off to Jeff Weitzen and in January 2001 he returned to a company that was unraveling. Gateway later merged with eMachines in a move that refreshed the management bench and gave Waitt and exit. Last September, Gateway named its fifth CEO in six years. 

Needham analyst Charlie Wolf said in a research note:

"The return of the prodigal son has many precedents in American business. Steve Jobs returned to a company in shambles in 1997 but has since turned Apple into one of the great growth stories of the decade. Mark Hurd, though not a prodigal son, also took over a company in disarray and turned HP into a formidable competitor in less than two years. At the same time, Ted Waitt, Gateway’s founder, was unable to return the company to its former glory when he came back in 2001 after a year’s sabbatical."

So where will Michael Dell's return rate on that scale of extremes?

Probably somewhere in the middle. It's unlikely Dell will have a Jobs-like impact. Dell's return may not be a disaster either, but there are enough clues to indicate that Michael Dell's return is no slam dunk. Among them:

  • Dell never really left. Sure Kevin Rollins was CEO, but it's not like Michael Dell wasn't involved in the company. While Rollins missed quarters and had his share of mistakes, Dell was still at the company. The two executives shared an office and made decisions on trouble spots like customer service together. And more often than not the two seemed like they were on the same page. Dell at least shares part of the blame for the company's problems.

  • Dell is married to its direct model. The direct model is just swell, but when everyone else has similar manufacturing processes there's no advantage. It's not like Dell is going to radically transform the business model. As Cowen and Co. Louis Miscioscia analyst notes:

"We view the Dell 2.0 strategy as only a modest change, and is not aggressive enough to force a quick turnaround. Getting $3B of cost savings out of the supply chain is impossible, as Dell was, and is still a lean machine."

  • Dell has never dared to be different. The market has changed, but Dell's DNA remains the same. Will Dell's design significantly change? Will it sacrifice efficiency to create more appealing products?

  • The PC market has changed away from Dell's model. Miscioscia says:

"The issues plaguing Dell have to do with the  market  shifting  away from desktops to notebooks, both from a manufacturing and sales standpoint.  HP and Dell source from Compal, Quanta and other Taiwanese ODMs so there is little differentiation.  Dell then ships the product to Malaysia for a build to order process that might not be well-suited to how notebooks  are  purchased.  This extra step adds something to the cost and thus the price.  If  a  consumer  or small businesses customer doesn't find value in a built-to-order product,  then it's lost margin to Dell.  In addition, many retail or SMB  customers  want  to see, touch and feel a notebook before they  purchase  it,  and  carry  it  home immediately.  This is very difficult, or impossible to do with the Dell  direct model."

  • More management turnover ahead. Rollins' managers will be replaced by Dell's. This process could take 3 to 6 months just to solidify the executive team.

Simply put, Dell's return to glory is a jump ball at best.