Michael Dell's Return as CEO

I would be remiss if I did not remark on this past week's news concerning Michael Dell.

Dell fired Kevin Rollins, Michael Dell's replacement as CEO, and announced the return of its namesake founder.

Of course, the business media was awash in stories concerning whether Michael Dell is the right CEO for Dell, whether he can turn the company around, etc.

Frequent readers of this blog will not be surprised by my own opinion on this matter. In the many prior posts I have written (search on the word "Dell" to see some of them) about this company, I have expressed my belief that the firm's business model's best days are behind it.

Today's Wall Street Journal carries a piece in the Marketplace section, on page B4, by Joann Lublin & Erin White. Under the "Theory&Practice" column, they discuss Dell's return from the perspective of other founders returning to rescue their floundering companies.

Frankly, I find the piece to be of no value. Whether a lot of founders are returning to their companies or not, the high-profile cases are very few in number, and, thus, statistically meaningless.

My own opinion is that it's better to look at the type of product or service involved, rather than the class of phenomenon, i.e., "returning founders and their successes."

Consider, for example, Ted Waitt, of Gateway, Mark Eppley, of LapLink, and Charles Schwab, of the company that bears his name.

Waitt's company shares the same product space with Michael Dell's, and has had a similar fate. Perhaps more cataclysmic, and earlier, due to the differing sales models, but, still, it's clear the era of expensive, custom-build PCs delivering consistently superior total returns is behind us. In their prime, I owned both Gateway and Dell in my portfolio, so successful was each. But that was more than seven years ago now.

Eppley's product has been eclipsed by technology. Period. Who would even bother with a dedicated PC-to-PC cabled product anymore? I'm no expert, and even I plumped for a wireless network in my home last year. So Laplink's bankruptcy filing, as of 2003, did not surprise me.

Schwab's case is different, due to its being in the discount brokerage space. It was firmly glued to the rise, and subsequent fall, of market-bubble day-trading volumes by retail "investors" in the late '90s. True, Schwab has apparently refocused his firm on discount trading. However, as a customer, I have been the target of unwanted 'wealth management' advice which, honestly, I do not find credible, coming from Schwab. Looking at a price chart for Schwab and the S&P500, I can't help noticing that, once again, Schwab's total return performance is tied to market volumes and bull markets. Maybe "Chuck" has turned the firm around, secularly, maybe not. I don't think one could tell in the midst of this rising market.

But, back to Michael Dell. As wonderful and focused as his points were, in the leaked memo which was described in today's Journal, I don't think he'll make much of a difference in terms of returning his firm to consistently superior total returns.

Consider this. If it only takes one person to fix Dell, then how stable is the whole firm? How attractive and reliable should investors consider a firm which rises or falls on just one person, the CEO. And only the founder as CEO?

If, on the other hand, the fault lies with the markets and the business model, and not just the CEO, then what magic does Michael Dell possess that Kevin Rollins did not? Is it just personal magnetism, and pride in the company name? I think Michael Dell is a gifted and effective business leader. He absolutely earned his sizable fortune through smart business management and hard work. He may restore profit margins for Dell, and maybe some revenue growth, as well. However, the salad days of the product/market are simply gone.

As I wrote in this September 4th post last year, after shopping for a new laptop for my daughters, Dell simply missed the changes in consumer behavior with respect to requiring customization, hand-holding, and resisting instant gratification in the form of leaving a store with a PC or laptop that day.

So, while I personally wish Michael Dell success in his attempt to fix what's wrong with his company, I doubt his chances, and I don't think that, even if he enjoys some success, it will do much for long term consistent superior total returns for his shareholders.