Dell’s long, hot summer of discontent

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Dell has been suffering from a turbulent summer. Not only did the company post a staggering 51 percent fall in Q2 net income and embark on a massive recall of laptop batteries, but to top it all off it’s been leaking executives to Lenovo.

 

Things started looking shaky for the company back in August when it reported the heavy fall in net income. Dell had previously warned that its Q2 would be affected by aggressive pricing in a slowing global commercial market.

 

At the same time, the Texas-based firm was subject to an informal investigation conducted by the US Securities and Exchange Commission related to revenue recognition and other accounting and financial reporting matters.

 

Making things worse for the company, rival Hewlett-Packard (HP) posted a 51 percent rise in Q2 net profit and then proceeded to announce gains in worldwide market share from its competitors, including Dell.

 

The firm’s summer then reached even lower depths as it was forced to recall 4.1 million Sony-made laptop batteries due to fire risks, in what the US Consumer Product Safety Commission called the "biggest ever recall" of electrical goods.

 

The company recalled batteries sold with Dell Latitude, Inspiron, XPS and Precision Mobile Workstation notebooks, despatched between 1 April 2004 and 18 July 2006.

 

Dell, HP, Lenovo and Apple all belong to the OEM Critical Components Committees of the IPC-Association

 

Connecting Electronics Industries. Ironically, two months before Dell made the recall it initiated plans to hold a technical summit – the intention being to establish manufacturing standards for lithium-ion batteries for handheld and portable devices.

 

It also committed itself to replacing the affected batteries free of charge.

 

The company’s run of bad luck has additionally been compounded by the number of Dell executives jumping ship to rival PC maker Lenovo.

 

The exodus, which now stands at half a dozen, began in December last year with the company’s CEO William Amelio enticed to the Chinese PC giant. Ever since, colleagues, mostly from Dell’s Asia division, have gradually started to follow his lead.

 

Former China president of Dell, David Miller, joined Lenovo as SVP and Asia Pacific president back in August. He was joined by his former colleague Sotaro Amano, who had been serving as Dell’s corporate director of Japan home and business sales. He was soon appointed president of Lenovo Japan.

 

When Lenovo announced its plans to streamline its customer service operations through the creation of the Singapore-based Lenovo Services business unit, more Dell executives decided to quit and fly to the rival’s nest.

 

Lenovo’s Singapore-based Centre of Excellence is now headed up by former VP of marketing at Dell, David Schmook.

 

Christopher Askew, former Dell VP for Asia Pacific and Japan, was then named VP responsible for Lenovo Services.

 

Lenovo has been effectively strengthening its team while undermining Dell’s position in the region in the hope of gaining market share.

 

Recent indications have also pointed to a potential price war between the two rival companies. Chairman Yang Yuanqing was reported as saying the company is "not afraid of pricing competition". Which is a good thing because Dell has been lowering its prices in preparation for such a battle.

 

Fresh hope for Dell comes from its plans to expand into India, doubling its workforce in the country to 20,000 over the next three years.

 

Dell has said it will invest $30 million over five years in setting up manufacturing operations in the region during the first half of 2007. The company will open a factory in Sriperumbudur, near Chennai in southern India.

 

The company’s founder Michael Dell said the firm will also expand its number of call centre staff and other business support roles and build a fourth customer contact centre in Gurgagon.

 

Rajan Anandan, Dell India’s VP and general manager commenting on the new Chennai factory, said in a statement: "We will start with a production capacity of 400,000 units and quickly ramp up to much higher numbers."

 

The investment, Dell hopes, will help the company win share on the booming subcontinent by cutting delivery time.

 

"Local manufacturing will enable us to have the same supply and delivery chains as we have in many other markets," said Paul-Henri Ferrand, Dell’s VP for its South Asia division.

 

Undoubtedly owner Michael Dell and his chief executive and president Kevin Rollins can pull themselves out of this troublesome period. But with more of the same expected in the upcoming quarter, it will be a while at least before the pair can look back on this summer with anything but a wince. Christmas can’t come soon enough for Dell.