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.