Dell's week of hell?

Way back on August 12, 1981 IBM released the first Personal Computer (PC). It could have been a festive week for Hardware vendors last week. Some claim it wasn't… especially not for Dell, but I'm not so sure how to look at this week. Let me share my views on it.

 

Market & Market Share

From a historical point of view

Since 1981 the market for Personal Computers (PC's) has dramatically changed. IBM, the first company on the market isn't on the market anymore. Since May 1 2005 the Lenovo Group acquired the PC division of IBM. Since then they produce the IBM models of laptops and desktops. The second player on the PC market, Compaq, doesn't exist anymore too, since it was purchased by HP in 2002.

Market share

Nowadays the PC market is dominated worldwide by Dell (16,5%), HP (14,9%), Lenovo (6,0%), and Acer (5,0%) but in contrast to the last few years Dell sales grew less than the market, while competitors grew more. When this trends continues Dell will gradually lose grip on its market share and eventually find itself no longer to be the top dog.

Profit margins

The PC market is also a market with low marges. With Dells sales amounting to 55 Billion USD there's a 6,39% profit margin. HP's profit margin is a mere 4% and we can all guess the profit margins of the other players. This is a tough market where the players can't afford to lose their market share and the top dog has the biggest profit margin.

 

Customer Service

Cons

A simple search on the Internet proves to be enlightening when you want to know what people think of Dell's Customer Service. Where some people actually try to make a substantial contribution to the problem by clearly stating what's wrong in their opinion, other people just burry it with mere complaints, swears and curses. HP, especially, tries to win Dells customers by advertising its customer service, which it claims to be better than Dells.

Pros

Earlier Dells new head of customer service, Richard Hunter, announced a 100 Million USD boost to U.S. Customer Service to improve the way customers are treated: as people. This week the Michigan's 2006 American Customer Satisfaction Index came out and Dells spendings on their Customer Service weren't thrown away dollars. Dell's rating rose to 78 from 74, surpassing the HP, Compaq and Gateway brands.

 

Batteries

Cons

In the last three months we saw Dell laptops go up in flames in Tokyo and Pennsylvania. Last week the first European laptop (a Dutch one, but used in Hungary) went up in flames. The cause: Lithium-Ion batteries produced by Sony and used by Dell in their laptops between April 1, 2004 and July 18, 2006. These batteries were used in Latitude, Inspiron, Precision and XPS laptops, which basically doesn't leave a laptop model unaffected.

Although overheating batteries shouldn't be a problem for a hardware vendor it IS a problem for Dell. Where HP, Sony and Apple use the same batteries in their laptops and recall batteries as well it's the Dell laptops that get the media attention. Of course I know Dell is the no. 1 hardware vendor in the world, but HP doesn't fall much behind and the two companies seem to be flipping coin on the position every few years.

Mitigating factors

This media attention is getting close to mass hysteria. My colleagues are practically refusing to use their Dell Latitude D6x0 laptops and I know one colleague that leaves his laptop at work so he can get some sleep at home, without worrying about his house going up into flames. It's unbelievable!

Let me put three things straight:

  1. All three cases of 'exploding' laptops were cases where the battery leaked, then overheated and then went up in flames. There wasn't any sign of an explosion, but I believe a laptop like that could set other things on fire, like your home.
  2. In all three cases the laptops were 'on' or 'charging'. They weren't dormant inside a computerbag or shut down. If you shut down your Dell laptop (read: not in hibernation or stand-by mode) you will be safe.
  3. Dell is recalling 4,1 million batteries and there were only three (known) cases where things went wrong. The odds of a laptop going up in flames when you bought a Dell laptop are equivalent to becoming a millionaire when you buy a lottery ticket…

Pros

Dell's battery recall program might even do Dell some good. Sony supplied Lithium-Ion to Dell, but also to HP and Lenovo. When the U.S. Consumer Product Safety Commission finds out their batteries might also be faulty then Dell was the first company to recall it, which in terms of image and market share might be just what Dell needs.

 

Stock exchange

The stock exchange is the field where I can really see what people think of Dell. That's easy, because it's represented in numbers that can be easily put into a chart, showing trends.

10 year period

When you look at the stock's chart over the last 10 years you can clearly see the Internet bubble in the early years and a clear drop after September 11, 2001 from around 60 USD to 20 USD.

1 year period

Zooming in on the last year there's a subtle drop in the stock's chart. Slowly the stock is slipping away from 43 USD to 20 USD. It seems Dell's stock is right back where it was back in the last months of 2001…

Last week

Although August 17 was a bad day for the stock it recovered the day after, leaving a small plus behind. Even when looking at the last month there's a small plus. Perhaps we've seen a turning point on the stocks chart?

 

Conclusion

I'm not putting any money on Dell, but I'm not convinced we are about to witness the end of the Dell era, like some people claim. When looking at the PC market as a whole, the battery recall program, the improved customer satisfaction numbers and of course the stock chart I'm even unsure this was Dell's week of hell [^o)]

Sources

Dell's customer-satisfaction rating turns around
Dell Battery Return Program
Dell's Battery Recall: How Bad Is the Danger?
Nasdaq Stock Charts

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