Thursday, November 19, 2009

The Demise of Dell

I've been heralding the demise of Dell Inc. for a number of years now.  The company that began the vicious PC price war in the mid-90's is succumbing to its own failed strategy. 

Dell's quarterly results released today confirmed the company is on the fast track to oblivion, unable to maintain price and margin control and having destroyed whatever remained of the company's brand value.

Over the past several years Dell Inc. has spent almost as much money buying back shares (almost $28 billion) as the company is now worth (about $30 billion) in a desperate effort to increase earnings per share that could not be achieved organically from operations. The company is a shell of its former self.

Dell's slide is so pronounced it has now been replaced as the world's #2 PC maker by Acer which has experienced explosive sales growth in part at Dell's expense. Once an industry titan through production efficiencies and a sell-direct model, Dell now languishes due to a lack of innovation and a consequential lack of unique, distinguishing products. 

Dell's management is counting on a rebound in enterprise spending to shore up the company's moribund revenue and profit performance. The company may plug along selling technology products and services but it's now outclassed by major rivals such as HP and Apple that have chosen to invest in developing innovative products as a means to improve performance, maintain higher margins and enhance the perception of brand value to customers. 

Dell's shares traded down over six percent after hours following the release of the company's most recent quarterly results that reflected a fifteen percent drop in revenue and a more than fifty percent drop in earnings. 

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