Michael Dell and the Direction of His Company

The difficulties for Dell are detailed in a Wall Street Journal article entitled, “Dell Playing Keep-Up With Rival H-P” (11/19/09, Section C1).  The Austin-based company is lead by its innovative founder and CEO Michael Dell.  Dell has been an enormously successful computer company, but according to the Journal has recently lost “market share in its core PC business…(and) fell to the world’s third-largest PC vendor…putting it behind H-P and Taiwan’s Acer.”  So with its rivals doing well, Michael Dell is looking for a way to position his company to do the same, and regain some of its lost market share.  This isn’t exactly an easy thing to do.  According to the article, analyst Jayson Noland thinks “Dell is ‘not currently positioned well for the long term’ and may need further acquisitions to compete.”  He is alluding to Dell’s recent deal to acquire Perot Systems for close to four billion dollars.  This move, according to business coverage, was done in order for Dell to better compete with its rivals.  The computer world is moving in the direction of offering service systems in addition to hardware, and this has been the case for a while now.  In a service-based economy, it is a smart move for Dell to gain a piece of this market.  Dell needs to be able to compete with the likes of IBM who are masters of service-based renderings. 

Dell was obviously hurt (like everybody else) in the recent economic downturn.  But it also seems to me that they are too dependent on computer sales, much like IBM was too dependent on mainframe sales prior to the Lou Gerstner-era. Of course, there are probably other reasons for this backsliding as well.  The article mentions that Michael Dell has been trying for two years to turn around the slumping company.  I believe the Perot Systems buy will be able to help the company, but I also agree with analyst Jayson Noland that Dell will likely need to acquire more companies in order to position itself to regain its past share of the market.  This is risky, as it could entail taking on a lot of debt in a time when credit is harder to come by.  One of the biggest reasons many companies failed when the credit markets froze up in the Fall of ’08 was that they were overleveraged.  Perhaps Dell should look for ways to grow from within, though this is understandably a slow and difficult process, and may not be feasible at this point. 

            Michael Dell is going to have to make a lot of tough decisions regarding the future of his company.  These decisions are made tougher by the fact that industry leader H-P seems to be doing well at the moment.  Dell is on the decline side of the Sigmoid Curve.  It will be interesting to see what they do from here.      

Nissan's Electric Future

Automobile manufacturer Nissan is branching into the electric car market according to an article in the Wall Street Journal.  The article is entitled, “Nissan Turning Over a New Leaf” (11/18/09, Section D2).  According to the Journal: “By 2040, 75% of the driving done in the US should be done using electric power instead of petroleum combustion.”  Nissan is planning on launching three electric cars in the US.  The article cites Ghosn as saying: “’Our forecast is that sales of electric vehicles will be 10% of the total market…by 2020.’”  Mr. Ghosn also makes no mistake about the fact that Nissan is going in this direction due to the government incentives being offered to companies and consumers regarding electric cars.  “The government is offering $7,500 tax credits to buyers of electrical vehicles, and is spreading around billions in loans and stimulus program grants to launch electric vehicle production,” according to the Journal.  Nissan clearly sees an opening here to take advantage of the government assistance, and grab a large foothold in an emerging market.  There is risk associated with this approach however, as government funding could wind up being cut.  In addition, despite projections for growth, consumer demand for electric cars is not that strong currently.  Nissan and Mr. Ghosn are taking a big gamble on this.  I think it is a wise move, however.  The market for electric cars is only going to get stronger over time.  Also, should oil go back up to record highs, and gas hit $4 or $5 a gallon—Nissan is going to look pretty smart.  The challenge for Nissan, or any electric car manufacturer, will be achieving a price point where the average consumer will be able to enter the electric car market.  The article does not discuss how Nissan is planning on pricing its cars.  Its Nissan Leaf, however, is designed to be “a light commercial vehicle for use by companies such as FedEx.”  I think it is a great idea to also try to appeal to businesses.  Companies such as FedEx are incredibly sensitive to the cost of oil, and an electric fleet could help them develop more consistent energy costs.  Overall, I think that Nissan is doing exactly what needs to be done in their industry, and should be applauded.     

Goodbye AOL, Time for Time Warner to Get Going

I’ve recently been reading about Time Warner in the Wall Street Journal.  The article is entitled, “Time Warner Profit Hurt by Time Inc., AOL” (11/5/09, Section B7).  Time Warner is an absolutely enormous company that is a part of every American’s life.  They own the magazines at your dentist’s office—People and Time.  They own the TV station playing while you work out at the gym—CNN.  They own successful film franchises such as Harry Potter and Batman.  And they own AOL, everyone’s ex-internet provider.  So overall, Time Warner plays a part in your life, like it or not.  And I’m sure that Chief Execute Jeff Bewkes likes that fact quite a bit.  But that said, Time Warner isn’t doing so hot these days.  Their advertising sales continue to fall (that’s seven consecutive quarters of negative gain if you’re keeping track).  In addition, they are still hampered by AOL, who merged with Time Warner in 2000.  I can say without hyperbole that this merger one of the worst business moves in history.  According to an article I found on the BBC’s website, in 2002 Time Warner lost $99 billion in a single year, which at the time was “the largest annual loss in US history.”  Wow, that’s a bad merger.  So what is Time Warner doing to try and turn it around?  Well, they’re getting rid of AOL for starters.  According to the Journal, “Time Warner plans to spin (AOL) off into a separate company before the end of the year.”  In my view, dumping AOL will be a financial, and perhaps more importantly, a psychological boost for Time Warner.  But that’s certainly not the end of their troubles.  Time Warner is heavily invested in magazines.  The Journal cites that they own over two dozen of them.  Print media isn’t exactly burning up the financial chart these days, and that is certainly the case here.  In addition, the aging Harry Potter didn’t do as well at the box office this last time around.  Also, add revue is down at CNN because there isn’t a Presidential election to cover this year.  Ratings have also fallen at TNT and TBS.  Of course, you could blame a lot of this on the economy, and they are.  Management has been cutting costs as a result.  They also see “some signs of strength in its film and cable-TV businesses,” according to the Journal.  But the article also states that after the AOL spinoff Time Warner will “rely on its cable-TV networks for the vast majority of its profits.”  This doesn’t seem to me to be a place where a diverse content provider like Time Warner should be—dependent upon one source for most of its profits.  Time Warner had the right idea to branch into the Internet with AOL, in my opinion; they just picked the wrong company to merge with.  I think that now that they are freeing themselves from AOL, it is time to look into the Internet again.  This will take guts, but there is no doubt that this is where the future resides.  Overall though, I’m confident that Time Warner will be able to figure out new ways of generating revenue.