by Jonathan Berr | August 23, 2012 7:30 am
When Michael Dell returned in 2007 to once again run Dell (NASDAQ:DELL), the company he founded in his University of Texas dorm room in 1984, he sent out a memo to employees describing the company’s previous year as one of great efforts but subpar results. Well, things have only gotten worse at the company since Michael Dell’s second coming, and it’s time for the firm to hire a new CEO.
Dell’s latest quarterly report was yet another disappointment. Earnings fell 18% to $732 million, as the company’s growth-by-acquisition strategy and expansion into corporate markets failed to offset declines in spending by consumers. Revenue fell about 8% to $14.5 billion. The company slashed its outlook for the year, warning of a challenging second half.
“We’re transforming our business, not for a quarter or a fiscal year, but to deliver differentiated customer value for the long term,” said CEO Michael Dell, in a statement in the earnings release that could have been issued any time in the past few years.
Dell the man isn’t doing Dell the company any favors. Shares of Dell have lost half their value since the company’s namesake returned to run it. In 2010, the company paid a $100 million fine to the SEC to resolve an accounting issue and for failing to disclose material information to investors. Michael Dell paid a $4 million fine.
Revenue at the Round Rock, Texas, company grew about 1% between 2009 and 2012 as Dell seemed to miss the boat on changing technology trends, particularly the erosion in importance of the personal computer. Once the leading PC maker, Dell has failed to gain back lost ground as the machines became commoditized. Second-quarter data from Gartner show Dell in fourth place with 10.7% PC market share measured by shipments, trailing Hewlett-Packard (NASDAQ:HPQ), Lenovo and Acer Group.
Dell also has failed to develop new products in growth areas such as tablets. Dell’s Android-powered Streak machines got reviews that were lukewarm at best and were considered by experts to be a flop. As InvestorPlace Editor Jeff Reeves pointedly notes, Dell is in the same boat as HP.
CEO Dell has tried to take one for the team when it comes to his compensation, refusing increases in base salary along with stock and options awards for years. Other executives were not so selfless. Of course, the billionaire isn’t living paycheck to paycheck. Dell did accept a raise and other awards during the last fiscal year.
“In analyzing CEO pay for performance, the [Compensation] Committee considers the fact that Mr. Dell’s voluntary refusal to receive bonus payouts and equity grants for previous fiscal years unavoidably exaggerates the year-over-year comparison when more competitive bonus payments and equity grants resume, as is the case in Fiscal 2012,” the proxy says.
The board felt it was necessary to reward Dell for the company’s fiscal 2012 performance — when its revenue jumped a whopping 2% — with a $3.3 million cash bonus, a restricted stock award valued at $9.43 million and an options award worth $2.39 million. Dell’s outrageous compensation wasn’t the only strange thing in the proxy. As the website Footnoted.org and others noted, Dell executive Stephen F. Schuckenbrock got a $1.9 million relocation benefit for a 200-mile move in Texas.
Dell the company is a mess, and Dell the man clearly bears responsibility. As InvestorPlace IPO Playbook editor Tom Tauli recently pointed out, the CEOs of startup companies such as Facebook’s (NASDAQ:FB) Mark Zuckerberg aren’t always the best to lead more mature enterprises. Dell is an older case in point.
It’s time for Michael Dell to step aside and gives the keys to someone else. Surely, things can’t get much worse.
Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.
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