How Dell sunk and HP righted the ship

June 7, 2007, 12:17 AM UTC

There’s a new parlor game in tech circles: Analyzing Dell’s (DELL) spectacular fall from grace and Hewlett-Packard’s (HPQ) seemingly miraculous rejuvenation. Like any important history, revisionism abounds. For starters, it’s as if Dell just started re-thinking retail. In fact, it has been dabbling with mall kiosks for years. A sensitive sub-issue is: how much credit Carly Fiorina deserves for HP’s turnaround, which Mark Hurd largely has overseen. In a review today of a new book by journalist Michael Malone about HP’s founders, Wall Street Journal columnist Lee Gomes contributes these trenchant points:

Mr. Malone’s exuberance reaches its climax toward the end of “Bill & Dave.” First he describes the rise and fall of Ms. Fiorina, the CEO hired in 1999 to give a push to the company’s lagging stock price. Mr. Malone portrays her as a self-promoting harridan who is heedless of the H-P Way and drags the company into calamitous business deals, notably, he claims, the Compaq acquisition. Her successor, Mark Hurd, by contrast, is the founders’ second coming, bringing profits and tranquility back to their kingdom.

But this is a cartoon version of events. If H-P is now back in the game, a certain amount of the credit goes to the dirty work done on Ms. Fiorina’s watch, like the big staff cuts. And Mr. Hurd has himself continued the dismantling of some of the relics of the Bill-and-Dave years, including their generous pension plan.

In short, easy answers are hard to come by. Another WSJ piece this week (it’s free here) suggests that HP’s shift to retail is what enabled it to take share from Dell. That’s true. But it’s also true that HP had been pushing retail for a while (it wasn’t very good at selling directly to consumers, Dell’s strength) and benefited tremendously from the shift in interest from desktops to notebooks. Consumers overwhelmingly prefer to buy notebooks at retail. (Also see David Whitford’s recent take on Dell in Fortune.)

A final point. Perhaps Dell’s biggest mistake was setting artificial revenue goals, first of $60 billion in 2002 and then $80 billion in 2005. Dell had revenue of $57 billion for  its  most recent fiscal year, so it’s still got a ways to go. Goals are fine. But setting them too aggressively can get a company making the wrong decisions for the wrong reasons.