Could Bill Gates help Michael Dell turn around his ailing company? Financial analysts say Microsoft's new Vista operating system may ignite a PC revival.
Wall Street analysts and industry onlookers seemed to react favorably to news Dell (Quote) would replace CEO Kevin Rollins who resigned yesterday. The executive change followed a string of bad news, capped by yesterday's word the company expects lower revenues and earnings for fiscal year 2007.
Merrill Lynch analyst Richard Farmer in a report said handing the reins back to Dell indicates "serious change" is in store. Farmer believed Dell will spur new strategies, including partnerships, mergers and acquisitions and revenue models. The new CEO will likely bring in new management, a tactic used by Dell in the past, Gartner analyst Charles Smulder.
And ABI analyst Stan Schatt said Dell is the archetypical entrepreneur without the formal corporate training. Like Farmer, Schatt said the computer maker must make a dramatic shift.
Dell was crippled by its lack of any retail presence, which is an area Merrill Lynch saw the most growth globally since 2005. Dell never understood that people wanted to touch and feel computers. Schatt told internetnews.com that an agreement with Costco is a tentative step, but, to recover, Dell needs to sign a larger retailer and move closer to rival HP (Quote).
Another strategic mistake for Dell was its reliance on the U.S. computer market when the fastest-growing regions were Europe, the Middle East and Africa. First-time buyers in those regions insist on the retail experience.
Recently dethroned as the top PC seller, Dell mistakenly tried to compete with HP in the printer market. HP could sell computers at low prices, because it subsidized its PC sales with a strong printer unit. Farmer said only 29 percent of HP's revenue comes from PCs compared to 60 percent for Dell.
HP's choice of AMD (Quote) to power its computers meant the company could lower prices even more. The advantage Dell had when HP entered the PC market had vanished, according to the ABI analyst.
Dell's salvation could come next year as Vista is adopted by the SMB and enterprise markets. According to Merrill Lynch, SMBs will begin using Vista this year, and the number of larger companies upgrading to the new operating system will jump from a little more than 1 percent this year to more that 16 percent in 2008.
But Dell may not get the bounce it needs from new Vista PCs. The operating system is designed more for consumers, said Schatt.
In a bit of half-hearted good news, financial analysts said Dell's situation can only improve. Investor disappointment is unlikely to increase, Farmer said.
Dell's new CEO and its new financial estimates "start the clock ticking on the stock bottoming," Goldman Sachs said in a report.
Dell stock was up 1.6 percent to $24.63 in afternoon trading.