Friday, July 21, 2006

Dell Screws Up a Good Thing, Part II


Dell Expects Lower Revenue and Earnings Per Share in Q2

Friday July 21, 7:30 am ET


That’s the headline on the press release that hit the tape this morning, and it pretty much says it all: Dell, as we Wall Street types like to say in our sophisticated technical financial lingo, just puked the quarter.

Call me an irrelevant data point in a vastly larger scheme of things, but I can’t help think the root of the problem goes back not merely to the resurgence of HP under Mark Hurd, but to the collapse of Dell’s customer support—discussed in “Dell Screws Up a Good Thing” this past January.

The funny thing about that piece—aside from the huge volume of similar tales of woe from readers—was the call I received from a guy named Rob at Dell who wanted to make up for the whole experience by reimbursing me the hundred-plus bucks I’d spent getting the technical support Dell no longer wanted to provide, as well as giving me his direct phone number in case I needed any help in the future.

Rob was very nice, and it was very kind of Dell to reimburse me for the expense, but, not being a dog, I found it impossible to feel kindly toward Dell even after Rob's nice call and follow-up emails.

Fellow dog-owners know that if Dell’s tech support people had abused my dog Lucy for five hours—keeping her on hold, switching her to another line, asking her to pay for tech support she’d already paid for—Rob would have only had to offer Lucy a Milk-Bone, or scratch her back, or smile, and Lucy would have instantaneously gone from Sulking Dog to Euphoric Dog, wagging her tail, rolling over, licking Rob’s face and generally promising her love forever and ever and ever until the end of time and beyond.

But people, unlike dogs, don’t forget so easily, and while I appreciated the hundred bucks and the direct phone number, it didn't change a thing about my feelings towards Dell.

Interestingly enough, Dell’s efforts in adding people like Rob are mentioned in today’s release:

Dell continues to make significant investments in customer service and support capabilities. The company is seeing positive results and will continue to invest to drive a superior customer experience.

One more thing: unspoken in the press release is any impact from the current option-related problems engulfing many Silicon Valley companies. While Dell is not based in Silicon Valley, it has used options extensively as a key component of its employee compensation.

According to my Bloomberg, Dell spent more than $15 billion in the last four fiscal years buying back stock—yet fully diluted shares declined a mere 200 million shares over that time, thanks to the company’s willingness to dilute its shareholder base with large option grants. This is all perfectly legal, of course, but as options lose their place in the hearts and minds of investors, Dell may have to figure out a better way to keep costs down.

I suspect Dell’s problems are not over—no matter how many Robs they bring in.



Jeff Matthews
I Am Not Making This Up


© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

6 comments:

circus_pig said...

I think there are two basic reasons for Dell's shortfall. First, the the market is saturated. Everyone who wants/needs a computer has one. Second, because the market is saturated, Dell, HP etc.. have become dependent on the replacement/upgrade market. There was a compelling reason to upgrade when the average machine ran at 133 Mhz and had maybe 128 meg of memory.

Today's average user has, at a minimum, a PC that runs at 500 Mhz, has 256 or 512 Meg of memory and works just fine for virtually every application. And that machine will continue to work just fine for several more years. Basically, the market is saying: "It works, so I won't fix it"

Poor tech support service is a convenient scapegoat, but high volume corporate, government and institutional customers couldn't care less, as they provide their own help desks. The individual who needs help bought one machine that netted Dell maybe 40$.

CR English said...

A few thoughts on Dell & their customer service. I bought a desktop for my home office back in January using a combination of the internet and calling a live body. No problem getting the computer it showed up in 5-7 days. However the bill never came. In fact two months went by and all of a sudden by chance one day I realized that I hadn't paid for the darn thing. So I try to call the rep who sold me the computer to ask for a copy of the bill. She's not there anymore. I e-mail customer service twice. I get back each time a robot response that somebody will contact me in 24 hours. Nobody ever does. Finally through a friend of a friend of a friend I contact a live body at dell who eventually gets me a copy of the bill which I promptly pay. Something about a wrong billing address which is an issue that I addressed with them TWICE last year. As I said to them when I was trying to figure out this whole thing. "I'm one of the good guys making a legitimate effort to pay for what you sold me. I wonder what happens to those less inclined to pay up?"

So flash forward to mid-June. I need a new laptop. I go through the same process ordering on the phone while looking up what I want on the internet. The computer shows up 5-7 days. I'm STILL waiting for the bill.

And I'm not making this story up.

mehoffer said...

ol' C.P sounds clueless to the corrosive percussions of customers complaining.

Unhappy customers are well known to tell far more people about their travails than satisified ones do about their pleasurable experiences. Most reports contain a 10 to 1 ratio.

Qualty customer service is key to providing the superior value that kicks off the virtuous circle of lower marketing costs, higher margins, higher returns on investment, lower capital costs, more R&D, better products, superior value....

The customer is always your best sales force, and usually your best R&D facility. There's little wonder why he is, rightly, "King".

Nusair Bawla said...

In addition to what circus-pig said, I think high gas prices are really hurting most consumers. This does not bode well for this christmas either.

BelowTheCrowd said...

The Dell folks should meet my cat. He remembers everything. Every single, stupid thing.

And punishes me for it every day...

-btc

circus_pig said...

Just to follow up on the "clueless" comment: Is Dell the only PC maker with consumer service issues? If I call Gateway, do I get a technician in San Diego? Look, HP outsources tech support to India as do many others. How much hand-holding can Dell or HP do when they're making 40 bucks on the transaction?

Just because you and others have issues with Dell's tech support doesn't mean that poor tech support is the reason for their sales shortfall.