Buy Dell when the doubletalk ends
I realize only now that the signals that Dell (DELL) still hasn’t gotten its act together were apparent a month ago at the Fortune Global Forum, when CEO Michael Dell took to our stage in New Delhi with my colleague David Kirkpatrick. I tried listening carefully to the conversation. But Dell wasn’t making much sense. He was going on about “simplicity.” Here’s a Dellbabble sampler, courtesy of a writeup in India eNews.
With legacy costs and inflexibility built into the system, we now need to simplify to reduce costs and to create new systems. You can make money by making things complex or you can make money by keeping things simple. We’ve chosen to make money by keeping things simple. There is a large business opportunity to drive costs down by simplifying.
Huh? Dell was speaking as if his company were a startup out to undo all the junk the big companies had sold customers for years. The only problem is that Dell is the company that has sold the aforementioned, er, systems for years. The next day Dell’s grinning mug appeared on the front page of The Economic Times of India under the headline: “Michael Dell keeping IT plain & simple.” Dell used the interview as an opportunity to bash IBM (IBM). As for what Dell actually is doing to regain its balance, not so much.
True, Dell generates $1 billion a quarter in cash. But it has lost the No. 1 PC maker slot to Hewlett-Packard (HPQ), a turnabout I detailed in June. Adding insult to injury, Dell the entrepreneur has been vanquished by Mark Hurd, the manager.
Can Dell get its act together? Sure, but it’s not guaranteed. HP struggled for years to make retailing PCs work; Dell’s a newbie there. But it also will have to start making sense. Dell sucked up to Wall Street by announcing 10% workforce cutbacks. But the Wall Street Journalon Friday quotes CFO Don Carty saying that so far Dell has “seen little net reduction in its overall employee base of about 81,000 people.” (Acquisitions are partly to blame.)
Fortune’s Colin Barr sums things up nicely with this reaction to a Dell statement Thursday that discussed its “strategic priorities” rather than its plan for action. Writes Barr: “Statements like that are never a good sign, because when execs have good news to offer investors they typically don’t hide it behind nonstatements about strategic priorities.”
Back when we all were in India, Dell’s share topped $30 a share. They fell about 10% in after-hours trading Thursday to around $25.