No one likes to exhibit schadenfreude at the misfortune of others, but in the case of Austin-based Dell Computers, it’s purely professional: they failed to fulfil the need they claimed to meet, and are a drag on the market until they do, so it’s good the market is kicking them out the door to make room for others, namely HP-Compaq which just surpassed IBM in sales.
Layoffs hit close to home Monday at Dell, which said it will close its Austin, Texas, desktop manufacturing facility as part of an effort to trim billions in costs.
The Austin facility, which replaced a smaller facility in Austin, is where Dell fine-tuned its “build-to-order” strategy that allowed it to vault ahead of Compaq for the top spot in PCs in the early part of the decade. By not building PCs until orders get placed, Dell minimizes the time it holds components in inventory, which in turn reduces costs.
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Dell also reaffirmed its plans to reduce employee headcount by at least 8,800. So far, it has eliminated 3,200 positions. Overall, the company hopes to reduce expenses by $3 billion a year on average over the next three years. ^
Did that shadow passing over your face connote a sense of deja vu? Perhaps:
Dell released preliminary earnings Thursday showing positive signs in its servers unit, but announced it would lay off 10 percent of its workforce over the coming year.
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Dell has been attempting to turn itself around in the last year after losing its lead as the world’s largest PC maker to Hewlett-Packard in 2006. It’s seen heavy turnover in leadership, including the return of founder Michael Dell as chief executive, replacing Kevin Rollins. ^
No word on whether this is the same 8800 but you can see how long this downward pattern has been working.
Dell was a one-shot wonder. Its concept was the build-to-order PC, based on a Burger King drive-through, and it came along just as most of the American public were buying PCs to experience that new intertubes thing. Now that people have computers, and older computers, and multiple computers, and we have computers coming out the wazoo, the fat margins are gone. So is the rising demand. And suddenly we see that Dell’s business model is flat.
As soon as this business was starting to wane, Dell introduced its $400 basic price point machines, a low cost unheard of before that time except in real junker white boxes. This was their solution to declining demand: downscale their market. In doing so, they handed the baton off to their competitors, because their $400 machines were highly unreliable.
As a consultant, I’ve heard many stories of how Windows “just crashes all the time.” In all but a handful of these, the answer to the question “where did you get your machine, and how much did you pay” has two parts: Dell or HP, and under $500. These machines are prone to lockups, overheating, erratic internal incompatibilities and so on because they are new spare parts grab bags. You don’t have the money to pay for engineers to ensure that a cheap box of parts has high degrees of internal compatibility or reliability. Instead, you make the worst sin a PC builder can do, which is to look at the packaging and say “well, it says it’s compatible and it’s cheap, so go with it!” You wouldn’t do that for your home machine, but because Dell is a giant brand, you would buy it from them. Silly you.
In pursuing the $400 market, Dell depleted itself of brand momentum and gravitas. Dells went from being seen as the Saabs of the PC world to its Hyundais or Ford Focuses. Even worse, they went from being seen as reliable to being seen as erratic junkers. The consumer may act dumb, but he or she may not be as dumb as they act, because when you see a $1500 box that runs Windows XP flawlessly and then come home to a $500 box with constant crashes, it’s a simple mental step to recognize the cheap box is a junker, especially when we’re in a society where the tendency of cheaper products to be junk is well-recognized. Otherwise, why have brands and brand value at all?
Dell attempted to patch the situation up by buying Alienware, a company that started as a specialized outfit making high-performance machines for gamers, but then found that its primary customers were businesspeople, artists and musicians who wanted laptops and desktops put together with a higher regard for part quality. Even so, Dell didn’t take the hint.
Many of us hoped that Dell would become the Apple of the PC world, selling nicer-looking machines and using its bulk purchasing power to sell nicer components at a lower cost, but even Apple doesn’t do that, and Dell didn’t come close. Instead, it sold us cheap machines loaded with adware, and almost no attention was spent on making the user experience simple, powerful, beautiful and effective, something that Apple does well. Building user experience builds brand. Dell build a brand befitting a manufacturer of microwaves for college dormitories.
Now we see Dell face the inevitable conclusion of its decline. A 10% drop in employees isn’t a death blow, but it’s far from a good sign. The worse sign is that Dell has no clue how to market itself and so stop the bleeding, which means a slow spiral into true irrelevance. HP has surged ahead by having a good-better-best product line, but this is success in a relative sense and still does not challenge the rising ideas of computer as luxury good (Apple) and computer as appliance (Asus). HP has the market — for now — but could learn a lot from deposed Dell and fading IBM.
Dell’s servers have usually been good, but in the last year of ordering high quality servers I’ve personally seen at least few issues including a bad NIC card that thrashed a network to oblivion, and another box with the RAID formatted just flat out wrong (along the lines of ‘why does this linux install report 80GB when it should be showing 2TB for my data store?? the multiple drives are all here…’).
That said I have been using one of their higher-end laptops for two years+ and it has been fantastic.