Comment: What's gone wrong at Dell?

 

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Posted on 23 Feb 2007 at 13:08

There's one, insurmountable problem about being at the top: the only way is down. For Dell, formerly the world's largest PC maker by a distance, the downward spiral is looking ominously steep.

For the crucial fourth quarter of last year, Dell saw its PC shipments slump by more than 8 per cent year-on-year, according to research from IDC. That figure doesn't sound disastrous, but compared with its nearest rivals the picture looks much bleaker: HP was up 24 per cent, Lenovo up 9 per cent, Acer piled on a staggering 38 per cent and Toshiba an impressive 18 per cent. In other words, all four of its nearest rivals showed healthy growth while Dell went backwards, losing the right to call itself the world's biggest PC maker in the process, as it ended the year in a dead-heat with HP.

So what's gone wrong at Dell? For the past decade the company has been the darling of the PC industry, shipping out low-margin, build-to-order black boxes by the million. The problem was the industry moved on - and Dell didn't.

The growing consumer appetite for notebooks rather than desktops has badly wounded Dell. When it comes to design, Dell's functional but, frankly, dull case designs are failing to win over wallets. 'Attractiveness of product design is resonating well with consumers - not just Apple, but Sony, Acer to a degree, Fujitsu Siemens and Toshiba to name but a few [brands]. Consumers are preferring to go straight to a store and get hold of those shiny, attractively priced notebooks as opposed to going to Dell's direct model,' IDC's senior research analyst, Michael Larner, told me.

What's more, Dell's USP - it's build-to-order policy - is far less compelling on laptops than it is with desktops. '[Notebook] customisation comes in terms
of screen size and case design. Dell isn't doing much in that regard,' Larner added.

Yet, even when Dell has a chance to ram home the advantages of its direct model, which theoretically allows it to introduce new components more quickly than its rivals, it sometimes fails to do so. For instance, Dell didn't implement AMD's processors into its product line-up until last summer - just as Intel regained the upper hand with its Core 2 Duo processors. For a company that sells itself on its ability to move quickly, it was a missed opportunity.

Dell's case designs and components might not set pulses racing, but there's evidence its customer support might have sent people's blood pressure soaring. In his keynote speech at the recent CES, Michael Dell virtually apologised for the company's poor service. 'We also geared up the way we serviced and supported our products. We haven't done as well here as we'd have liked, but we're making some great progress,' the Dell chairman claimed, citing a 10 per cent increase in customer satisfaction since new measures were introduced. Could it be that 'once bitten' customers are looking elsewhere for their PCs?

Yet consumer sales only make up a small proportion of Dell's business. At present, 85 per cent of its revenue comes from business customers, and thus Dell is particularly exposed to the current weak demand for corporate PCs, as businesses dither over whether to upgrade to Vista.

So is this the start of a terminal decline for the once untouchable PC king? It's far too soon to make such predictions, especially with a brand as strong as Dell's. There are also signs the company is starting to address its shortcomings: Dell also used its CES platform to show off design-conscious form factors, such as the striking Hangar 18 Media Center, which came from its recently acquired Alienware brand. If Dell can apply some of Alienware's design expertise to its mainstream products, it might stop bleeding customers to its more fashionable rivals.