Dell Hits The Wall

Wall Street analysts, for the most part, bought into the direct sales myth-making because Dell failed to reach a point where price elasticity would not deliver the sales numbers to mask numerous problems with the direct sales model. CRN Industry Editor Craig Zarley and CRN Senior Editor Edward F. Moltzen this week take a look at those issues in our top story.

With Dell yet again reporting it will not meet Wall Street consensus estimates, the Dell business model is certainly being looked at in a new light on Wall Street. Cindy Shaw of Moors and Cabot, who lowered her rating on the stock to hold from buy, perhaps said it best in her research note titled: “Downgrading On Numerous, Growing Concerns—Has Dell Lost Its Mojo?” Lost its mojo indeed.

The bottom line is that Dell&'s $500-and-below desktop PC prices are being met with increasing skepticism in a small- and midsize-business market driven more by solutions than point product prices. What&'s more, the service and quality issues surrounding Dell are doing what the perennial Dell boosters never thought possible: shedding light on the critical role the channel plays in the solutions business. Last week, a Dell spokesman said the company is working on its services challenges. As for the business model, Dell says it&'s premature to suggest the demise of the model, maintaining it is as vibrant as ever and delivers the best results for customers. Not without the channel it doesn&'t.

Just last week, Steve Plotz, president of Computer Systems, a system builder in Tampa, Fla., beat Dell on a bid for 14 desktop units and two servers because of concerns the customer had about Dell services. Plotz estimates that two years ago Dell was beating him in the commercial market on four out of five deals. That equation has now flipped in his favor.

Dell has lost sight of service and product quality, and that is paying off for system builders, Plotz said. “They need to change their philosophy and stop trying to put everyone out of business and work with people in this industry,” he said. Good advice, especially since Dell finally seems to have hit the wall.

Has Dell hit the wall? Let me know at (781) 839-1221 or via e-mail at [email protected].