Dell Computer Struggles to Maintain Quality, Stock Price
LYNN NEARY, host:
There hasn't been much investment in Dell, Incorporated lately. The computer company's stock recently hit its lowest point in more than three years. The Texas-based company's sales still lead the industry, but that lead has shrunk.
From member station KUT in Austin, Larry Schooler reports on what's happened to Dell's bottom-line and what the company plans to do about it.
LARRY SCHOOLER reporting:
Michael Dell started his computer company over 20 years ago, when he was a college student in Austin. The company has been growing ever since. It even weathered the tech bust that drove other businesses into bankruptcy.
(Soundbite of telephone ringing)
Mr. BRIAN TABOR(ph) (Dell Salesperson): Thank you for choosing Dell's XPS Digital Home Sale's Experience. My name is Brian. How can I help you today?
SCHOOLER: The company is still growing based in large part on its business model. It's simple. You call a Dell sales associate, like Brian Tabor, and he helps make the computer you want. Forget retail stores. Forget inventory. And pass along the savings to customers.
Dell's CEO, Kevin Rollins, says his company's business model still works fine. But Dell's growth has slowed. Profits have dropped 18 percent from last year, and the stock price has dropped over 40 percent. Investors and analysts want answers.
Rollins' theory: other companies have figured out that people like buying cheap computers online or over the phone, and some of them are getting better at running that business model. Rollins explained his theory to analysts in a recent conference call.
Mr. KEVIN ROLLINS (Dell CEO): They've eliminated some of the inefficiencies in their model. Selling price has declined more rapidly, and more than ever customers are more concerned about service and support as a point of differentiation in making purchasing decisions.
SCHOOLER: Rollins takes the company's problems with customer service particularly seriously. Consumers have complained they spend hours on the phone with support staff, without getting their computer problems solved.
And it's not just that the computes won't boot up. Dell also had to recall batteries and power supplies. Some computers even overheated to the point of burning holes in the bottom.
Robert Day(ph) quit Dell after a seven-year career as a regulator technician. He checked computers to make sure they conformed to industry regulations. He also worked with technicians who investigated computers sent back by customers. Day says Dell should rethink its strategy for assembling computers.
Mr. ROBERT DAY (Former Dell Employee): It goes back to cutting costs. It goes back to taking cost out of the systems being designed. And I think it also goes back to trying to be first to market in that I think that some corners were cut. I think that there wasn't as much due diligence in the pre-development testing or the developmental testing. And I think that they rushed products through when they should have probably stayed in development a little bit longer.
SCHOOLER: Dell spokesman Bob Pearson denies the company has skimped on quality control as it cuts down on production costs to compete on price. But he admits Dell has recently struggled to maintain consumers' confidence in what they're buying.
To that end, Dell recently announced a $100 million investment to upgrade its customer service. The project will add thousands of new call center employees. It will also expand the Dell Connect System, where you can get problems addressed online.
Dell spokesman Bob Pearson.
Mr. BOB PEARSON (Spokesman for Dell, Incorporated): What really matters then is for us to understand those problems right away, resolve them, get a computer that is working back in the hands of the customer as fast as possible. And we've got to be really good at that.
SCHOOLER: It's not the first time analysts and investors have heard Dell talk about investing in customer service, so they're waiting to see whether the newest investment pays off. The stock price hasn't moved much since the announcement.
Meanwhile, Dell is making other changes that, depending on whom you ask, either tweak Dell's business model or turn it on its head. Take sales: later this summer shoppers in Nyack, New York and Dallas, Texas will be able to shop for Dell products in stores, like they can in smaller mall kiosks. The stores allow the company to showcase a wider variety of Dell products.
Customers will still have to go online or call to buy the computer they see at the new stores, so the impulse shopper might still buy from another company. But Dell's Bob Pearson says the company still has an advantage over direct computer retailers.
Mr. PEARSON: If you go into a typical retail setting, you're going to buy whatever they have. You do not configure anything. At Dell you're actually able to go in and figure out what you want in the PC, make it somewhat personal to your needs, and then have that product arrive in several days.
(Soundbite of Dell advertisement)
Unidentified Man (Announcer): Call or go online today...
SCHOOLER: While Dell tests out its two new stores, it's still advertising rock-bottom prices on TV.
(Soundbite of Dell advertisement)
Unidentified Man (Announcer): ...it's the ultimate value in desktops defined...
Some Wall Street analysts aren't sure it makes sense for Dell to keep pushing cheap computers to improve profits; especially when some cell phones now cost more than computers.
Dell is betting that low prices, higher quality customer service, and some new, more sophisticated models will reverse the recent decline in its stock price. But it's asking Wall Street and its customers to be patient.
For NPR News, I'm Larry Schooler, in Austin.
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