How can Dell stop the rot?

How can Dell stop the rot?

The past month has not been a good time to be Dell.

The direct-selling computer maker has been plagued by bad news on various fronts, locally and overseas.

Last week the company’s New Zealand subsidiary admitted breaching the Fair Trading Act in a settlement with the Commerce Commission, in relation to a number of different representations made about its product offerings (read the story on page four).

At the same time, early figures by research firm IDC show Acer has toppled Dell from the number two slot in the local PC market in the second quarter of this year.

Globally, meanwhile, IDC reported every major vendor except Dell posted a double-digit percentage increase in unit shipments in Q2, compared to the same period last year.

IDC says Dell shipped 4.9 percent fewer PCs during the quarter than it did in 2006, as the company continued to struggle with its restructuring efforts.

And across the Tasman, HP took the lead off Dell in the commercial notebook sector in Q2. HP also widened the gap with Dell in consumer and commercial desktop PC shipments, recording 24 percent market share in the total desktop PC space over Dell’s 15.2 per cent.

Then in the US, Gartner reported Dell’s laptop sales to the consumer market sank nearly 20 percent in the second quarter, due to problems finishing units and shipping them to customers. The vendor sold 887,000 notebooks to the consumer market during Q2, compared to 1.1 million in the same quarter last year.

As well, last month, Dell announced a restating of its earnings for fiscal years 2003 to 2006 and the first quarter of 2007, after an internal audit found that certain employees had changed corporate account balances to meet quarterly financial targets.

To borrow an expression of David Letterman’s: “I wouldn’t want to give Dell’s problems to a monkey on a rock!”

Far from suggesting that the cure for all of Dell’s woes would be to adopt a channel strategy, however its channel-focussed rivals do seem to be having a better time at the moment.

It is safe to say that having a strong reseller and distributor base has helped Acer become the second-ranked PC vendor in this country. Acer country manager Rod Bassi has on several occasions told this newspaper of his goal to reach this milepost – as far back as 2004 and as recently as June – each time reiterating the vital role the channel had to play in this endeavour.

It hasn’t been an easy journey for Acer. It hit the mark in Q1 of last year, but failed to capitalise on this position and dropped down to third spot again in the following quarter. It has been working its way back up since, with Bassi saying the company would make sure it consolidates its position next time.

Of course we won’t know until later in the year if Acer will triumph over Dell again in Q3, but I’m willing to predict that it will.

Plus Dell has a potential new threat to concern itself with – Acer’s acquisition of Gateway, a brand not seen in this country since it exited these shores in 2001.

Gateway would be the ideal banner under which Acer can make strides in the lucrative consumer laptop market. It is already well recognised as a budget brand in the US and would allow Acer to target the lower-end of the market, without harming the equity of its main brand.

This strategy has worked relatively well for HP with Compaq, as it avoided the pitfalls of having to manage both consumer and corporate ranges under a single brand name.

If Acer introduces Gateway as its low-end consumer brand locally, the move should strengthen its lead over Dell.

The latter’s response could be to extend to New Zeland its new strategy of selling computers through retail channels, although Dell has already done this to a limited extent through The Warehouse.

Adopting a full channel strategy and appointing more local staff could, however, be an effective way for Dell to stop the rot.


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