Dell returns to CEO role at PC maker

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Dell returns to CEO role at PC maker

By MATT SLAGLE, AP Technology WriterThu Feb 1, 8:15 PM ET

Michael Dell's return as chief executive officer of Dell Inc. may have appeased analyst demands for now, but they say he faces an enormous, long-term challenge in fixing nagging problems that have plagued the computer maker.

In recent years Dell has lost market share to rivals, posted earnings below analysts' expectations, been the subject of an ongoing federal accounting probe and dealt with a voluntary recall of 4.2 million faulty laptop batteries made by Sony Corp (NYSE:SNE - news).

Kevin Rollins, who resigned as CEO for unspecified reasons, wasn't able to right the ship. Analysts say that if anyone can fix Dell's ills, it's the 41-year-old founder, who as CEO would be taking a more hands-on role than he did as chairman.

"We don't see Mr. Rollin's departure as a quick fix, but a sign that new consideration will be given to fix a model that is not well aligned to today's markets — so we see this as a positive step in a long multiyear journey," Keith Bachman, a Bank of America Equity Research analyst, wrote in a research note Thursday.

In Wednesday's announcement detailing the executive shake-up, Dell said he would focus his efforts on improving customer service. The company launched "Dell 2.0" last year as a strategy for regaining its footing in that oft-criticized area.

Repeated requests for an interview with Dell were unsuccessful Wednesday and Thursday, but in prepared remarks Dell said he was "excited to be CEO again and feel the same level of energy and drive I did when we launched the company back in 1984. I am as passionate as ever about delivering a superior value to our customers."

Dell's direct-sales model, which allows business and consumers to buy equipment directly from the company, turned it into a leading computer manufacturer and a Wall Street juggernaut with one successful earnings announcement after another.

But in recent years, the company has been stung by a market glut of low-cost, low-profit PCs and weaker-than-anticipated sales of its pricier, more lucrative desktops and notebooks.

Just last year, Dell lost its No. 1 position in the industry to rival Hewlett-Packard Co., according to recent reports from IDC and Gartner Inc. The shift left HP with 17 percent to 18 percent of the worldwide market in the fourth quarter, to Dell's 14 percent to 15 percent.

Dell also forecast fourth-quarter profit and sales below analysts' consensus estimates of 32 cents per share on sales of $15.30 billion.

The warning, included in the same release detailing Dell's return as CEO, sent company shares down 42 cents, or 1.7 percent, to close at $23.80 in trading Thursday on the Nasdaq Stock Market. The stock quickly gained back 8 cents in early after market trading. The stock price has ranged from $18.95 to $32.24 in the past year.

The company's accounting practices remain under federal scrutiny, and the U.S. attorney for the Southern District of New York has subpoenaed documents related to Dell's financial reporting from 2002 to the present.

As a result, Dell's earnings statements from the second and third quarters have yet to be filed with the Securities and Exchange Commission. Last week, Dell said it would supply Nasdaq with the reports, along with any restated financial documents, by March 14. It is still scheduled to post fourth quarter earnings on March 1.

It's been a busy few months of executive changes at the Round Rock, Texas, company.

Dell recently lured executives from General Motors Corp., HP, Amazon.com Inc. and Wells Fargo & Co. Last month, it hired former American Airlines chief Don Carty as vice chairman and chief financial officer and added a former executive from Plano, Texas-based Electronic Data Systems Corp. to run its global services division.

Andrew Neff at Bear, Stearns & Co. Inc. said the employee changes, culminating with Rollins' departure, were a step in the right direction. He said Dell has lost its edge in products, services and execution.

"We see management changes as a key step toward successful turnaround," Neff said in a research note.

Founding CEOs who have returned have had a lot of success at other tech firms, notably Apple Inc.

In 1997, co-founder Steve Jobs came back as CEO to the then-struggling maker of Macintosh computers and quickly transformed it into a leading consumer electronics maker with the iMac computers and iPod music players.

Dell's return puts a lot of pressure on the man who founded the company in his college dorm room nearly a quarter century ago and turned it into a worldwide electronics manufacturer, said Tom Gardner, co-founder of The Motley Fool, a financial information Web site.

"Now he's the most obvious single point of accountability," Gardner said. "He has the most experience and he's got the most at stake, and therefore has the greatest probability of success. If he's not able to deliver, one must ask very serious questions."

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I just wish I could talk to somebody in the States when i have a problem.