The Dell (DELL) Turnaround Died With Its Boots On

Dell’s (DELL) slightly frightening forecast about more restructuring, acquisitions, and component costs probably hurt the company to the extent of a 14% price drop today. But, the shares are still at $24.24 against a 52-week low of $21.61. And, the stock is heading back to the lower number.

It is only now dawning on the market that Dell may be a company that cannot be repaired. The direct-to-customer model on which the firm was built has too little share of the global market. Now that HP (HPQ) has taken the high ground, Dell probably cannot get it back. It has the additional problem of Apple (AAPL) and Lenovo being in stronger positions.

It may take Dell a year or longer to get a worldwide retail network that looks like the one HPQ has. In the meantime, it is likely that the larger company will continue to grow faster, at least in the PC business. The server segment is also more competitive. IBM and HP have big pieces of that action, and Sun (JAVA) will do almost anything to show more than single digit growth. It may even give servers away just like it does its software.

Global PC growth is running up a little better than 10% a year. Dell is probably lagging that by some, but even if it can get back to the industry growth rate it is not a compelling stock to own.

It would be nice to think that Dell had some alternatives, but it doesn’t. It is not in a broader array of businesses the way that HP is. It is bound by the competitive market forces in PCs and servers. It has no advantages in material costs. When the "direct" model was in vogue, it may have had some cost advantages, but those do not exist now.

Michael Dell may be the smartest man in the world. Or, maybe second to Jack Welch. And, even Jack could not fix this one.

Douglas A. McIntyre