From the pinnacles of power by Fortune editor at large Patricia Sellers
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August 28, 2008, 12:19 pm

Dell’s new talent misses on earnings

Dell (DELL) reported a surprise 17% profit decline Thursday, and its shares fell 9% in after-hours trading. After three years of pain for investors, the stock had risen 40% since April. But the disappointing announcement – second-quarter net income of $616 million, or 31 cents a share, vs. net income of $746 million, or 33 cents a share in the same quarter a year ago – is a sign that CEO Michael Dell’s recovery plan isn’t working as well as expected.

Dell, who started the company in 1984 in his college dorm room, did the opposite of what many returning founders do when they swoop in and retake the reins of a business. Instead of bringing back the old guard who built Dell, he hired a bunch of newcomers.

Since Michael, 43, replaced CEO Kevin Rollins in early 2007, he has hired a long list of outsiders. Ron Garriques, president of Dell’s global consumer group, previously ran the mobile devices division at Motorola (MOT). Steve Schuckenbrock, Dell’s president of global services and chief information officer, came from EDS, where he was co-COO and EVP of global sales and services. Mike Cannon, president of Dell’s global operations, was CEO of Solectron. In June, Brian Gladden became Dell’s new chief financial officer, moving from SABIC Innovative Plastics, which is General Electric’s (GE) former plastics division. Also, chief marketing officer Mark Jarvis joined Dell last year after 14 years at Oracle (ORCL).

Dell’s talent doesn’t come cheap. Ad Age recently did an analysis of CMO compensation and found that Jarvis earned more than any other chief marketing officer last year: $15.4 million in salary, bonus, and stock awards. Sweet!

Is all that new talent worth the price? Investors had thought it was. But now, maybe not. I had lunch recently with a headhunter who has worked for Dell and knows the company. Brian Reinken, U.S. boss of search firm Egon Zehnder International, lives in Dallas — Dell country. He wouldn’t talk about Dell or any particular executive placement, but he noted that Michael Dell realizes that the company he’s rebuilding needs to think differently. And the different thinking extends to selling PCs in retail outlets and hiring outsiders at the top level.

The simple lesson here may be that iconic leaders don’t necessarily bring back the magic at iconic companies. Over lunch, we also talked about Starbucks (SBUX). Since Howard Schultz, who fired CEO Jim Donald last January, reinstalled himself as chief, he has recruited three key execs from Starbucks’ glory days: chief creative officer Harry Roberts, global development president Arthur Rubinfeld, and Wanda Herndon, interim PR boss. Schultz just snagged Herndon’s replacement, Vivek Varma, from Microsoft (MSFT). He also hired a new chief information officer, Stephen Gillett, formerly CIO of Corbis, the stock photography company owned by Bill Gates.

Starbucks stock is down 42% in the past year. Maybe Howard Schultz and Michael Dell could learn a few great lessons from Steve Jobs at Apple (AAPL)?


I agree with the comments related to product quality and poor customer service. I bought Dell twice once for desktop and the last one for the laptop. From delivery of the laptop to dealing with Customer service, it was definitely not a good experience for that amount of money paid.
I guess the more they became a player in this market, the more they lost sight of the things which make a product attractive. Not sure if I would buy Dell or Windows system again due those issues.

Posted By Steven T. Herndon, VA : September 1, 2008 6:51 pm

@Brad wise…

Dell has to generate 2.2 times the revenue just to make 58% of Apple’s profit. Bad, very bad.

Posted By Savage, Montreal, Canada : August 29, 2008 1:14 pm

What DELL did back in 80s and 90s was path breaking. But there is nothing like a constant business model. They need to start selling in retail outlets( which they are just starting to do).

Also revenues have increased and profits are down. This is exactly what Ron Garriques did in Motorola before Motorola went down. I was surprised to see Michael Dell actually hire him for a bad job at Moto.

Posted By v, Chitown, Il : August 29, 2008 12:38 pm

Article changed it’s rosy tone from yesterday. Shouldn’t that be an update to the article rather than actually changing it?

Posted By Jimmy – OKC OK : August 29, 2008 11:18 am

They seem to concentrate more on businesses than home users.

Posted By gid, Houston, Texas : August 29, 2008 9:05 am

Mark Jarvis oversold his ability to transform Dell’s marketing organization – the consumer team under Garriques has their own CMO now. But Jarvis is just a symptom. Dell is mired in mediocrity from top to bottom, and seems content with staying there. The stock price is a reflection of that. It’s a shame, really.

Posted By John, Austin, TX : August 29, 2008 12:15 am

Dells are awesome At my middle school, all of the tech savvy, intelligent kids ask for dells. To answer the question “When was the last time you heard a teenager ask for a dell?”, my answer is TODAY. Macs are a joke. apple’s products are UGLY. Go Dell(they’re now carbon neutral!)!!

Posted By Warren, Los Altos Hills, California : August 28, 2008 11:04 pm

I have to say that I seldom take the time to comment on an article. However, this author is so disingenuous that I just had to write.

I read the initial version of this article, posted earlier in the day prior to the annoucnement of Dell’s disappointing results. In that version, the author “bet” that Dell’s talent would pay off and that readers would see this later in the day, and that Howard Shultz (Starbucks) could learn a thing or two from Michael Dell.

When Dell missed, the article was rewritten as if that first article was never posted. At no time did “Pattie” mention that she was one of those who had been wrong. The end was rewriten to now post Steve Jobs as the shning example of a winner. What a sham! Have some guts and own up! So much for forthrightness.

Posted By George, Delray Beach, Florida : August 28, 2008 9:17 pm

I ordered 2 Dell’s this Spring for my college bound twins. One came in with no problems at a great price. The other never came in and they kept pushing off the delivery date. I cancelled and bought a Mac.

No More Dells in my family

Posted By Mike, Framingham, MASS : August 28, 2008 8:09 pm

This is great! Years ago Michael Dell advised Steve Jobs to shut down the company and give the money back to shareholders. Look who is laughing now. While Dell makes horrible products and offers non-existent customer service, Apple is enjoying a monopoly when it comes to digital music and hip hardware. People crave Apple’s products. What is the last time you heard a teen asking for a Dell? I am curious what Michael Dell wants to tell Steve Jobs right now when Apple’s stock is trading at 170+ per share while Dell is somewhere in mid 20s.

Posted By Vitaliy, San Francisco : August 28, 2008 7:20 pm

Dell’s a joke. I worked there for years and saw a great deal of unethical behavior. The management could care less about customers as is displayed in the confusing phone trees, long waits, and lack of adequate training of the employees. This is a company just in it for the big bucks and now it’s falling apart.

Posted By Chris – Nashville, TN : August 28, 2008 6:35 pm

What Dell needs is more aggressive leadership. Michael had a great idea back in the 80’s. However, today Dell Inc. needs a CEO that is more aggressive and dynamic. Dell continues to take Pillows to Gun fights! They need to hire a Gunfighter!

Posted By Rob, Washington D.C. : August 28, 2008 6:12 pm

How does Apple’s market share compare to Dell’s? Gartner reports that Dell’s market share for US personal computer shipmenta in 2007 was 32.3%; Apple’s…6.2%.

Posted By Brad Wise, Del Mar, CA : August 28, 2008 5:35 pm

crappy products, horrendous customer service and a screw the customer attitude = bad business.

Posted By john, houston : August 28, 2008 4:57 pm

Is it a recovery, or simply a short-term investment to fool more buyers into getting a Dell? What Dell STARTED doing in the late 80s, was breath-taking!!! But,, the appeal of fatter profits, greater bonuses, and juicy stock awards was too great. Dell has never been consistent; wow them, lose them, try and win them back, abuse them and lose them again…eventually, the ‘used and abused’ migrate, as we did to Apple.

Posted By robert Puget Sound,WA : August 28, 2008 1:36 pm
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Pattie SellersPatricia Sellers has written some of Fortune's most talked-about cover stories, including "Can Meg Whitman Save California?", Melinda Gates ("The $100 Billion Woman"), "MySpace Cowboys," Martha Stewart ("I cannot be destroyed"), Ted Turner ("Gone with the Wind") and Oprah Winfrey ("Oprah Inc."). And she has broken ground with insightful pieces on career management issues such as ego ("Get Over Yourself!"), and "Charisma: Do You Need It? Can You Get It?" Pattie chairs the annual Fortune Most Powerful Women Summit, the preeminent gathering of women leaders in business, philanthropy, government, academia, and the arts. And she has helped oversee Fortune's "Most Powerful Women in Business" cover package since its launch in 1998. She started at Fortune in 1984, covering the big consumer brand companies.
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Jessica ShamboraJessica Shambora started with Fortune as a reporter in June of 2008, following a stint as assistant editor at Travel+Leisure Golf. Shambora has written for Sports Illustrated, SI Latino, Women's Health, and Triathlete. She is a frequent contributor to Postcards.
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