Consumers have savaged Dell over the past year or so for its poor customer service and support. Although this year the company made it a priority to correct those problems, it's not clear how long it will take Dell to regain consumer trust.
During Dell's last disappointing earnings conference call, Rollins announced that Dell would spend $100 million to hire new support personnel and retrain existing employees. Turnover has been abysmal within Dell's customer support organization, and the company has finally recognized that it needs to improve this crucial link to customers, said Roger Kay, an analyst with Endpoint Technologies Associates.
One other reason that Dell's earnings will be far lower than expected could be the amount of investment happening behind the scenes to improve not only support but product design, Kay said. There's lot of work going on inside Dell to improve the look, feel and performance of its products, he said. "They are doing a lot of engineering that they might not have been doing in the past."
Dell has also been unable to shift its revenue burden away from the PC market in favor of higher-margin businesses like servers and enterprise services. And within the server market, for example, a sizeable segment of the customer base has shifted from buying generic rack-and-stack servers, to looking at things such as manageability software and ease of use, said Illuminata analyst Gordon Haff. Dell offers manageability software but doesn't emphasize it as much as competitors do, Kay said.
"Plain vanilla boxes that are cheap to buy aren't completely out of vogue, but there are other considerations," he said.
Despite all the bad news, Dell's challenges are hardly insurmountable, said Forrester Research analyst Ted Schadler. The company already has taken actions such as simplifying its discount and rebate strategies to give consumers a better idea of the price they'll pay when they come to Dell's Web site, he said. Dell also plans to experiment with two shopping mall-based company-owned stores that don't carry inventory but give buyers a chance to try out Dell gear in person.
And, of course, financial markets aren't known for their restraint. "Wall Street always overreacts. They run up one side and then they run up the other side like a bunch of lemmings," Kay said.
Dell for years poked fun at the rest of the PC industry, while the company grew at more than 20 percent despite a sharp industry downturn. Now Dell is faced with the reality that it might have to change its stripes a bit to compete in a new era. The company has spent the last several years trying to convince the press and analysts that it is more than just a PC company, that servers, storage and enterprise services will help it continue to grow. But when things go astray in the PC market, it's very clear just how dependent Dell is on the product that vaulted it to prominence.
Even in the PC industry, what comes around, goes around. Michael Dell told a conference crowd in 1997 that Steve Jobs should consider shutting down a struggling Apple Computer and returning the money to shareholders. Jobs is probably smiling today.
Michael Kanellos contributed to this report.
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