Michael Dell is undoing everything that made Dell Inc unique so he can make it the world’s largest personal-computer maker again. It just may work.

Eleven of Dell’s 16 largest outside investors added to their holdings, according to the most recent filings. In the second quarter, Dell had its first increase in PC shipments from the previous quarter in a year.

Investors have responded to Michael Dell’s reassertion of himself as a controlling figure. At least six analysts raised their stock ratings since Dell took over on January 31 with a plan to move beyond the direct-to-customer strategy he pioneered and enlist retailers to help sell the company’s PCs.

“The problems were relatively foreseeable and the ability to change them was well within their reach,” said David Fleer, whose $ 600 million Bristlecone Value Partners LLC in Los Angeles built a holding of almost 1 million Dell shares last year, anticipating a leadership change.

Mr Dell, 42, has revamped the management team, hiring a new chief financial officer and operations manager and switching the top sales executives. He named Mark Jarvis, a former Oracle Corporation Executive, as the company’s first chief marketing officer, and created a consumer division led by former Motorola Inc Telephone Chief Ron Garriques. Dell’s PC shipments rose 5.7 per cent in the second quarter from the first, according to researcher Gartner Inc, the first sequential increase in a year.

The company still trails Hewlett- Packard, based in Palo Alto, California. “While still early, Dell’s refocus on its supply chain, the consumer and its diversifying channel strategy should begin to become more evident in the back half of the year,” Goldman Sachs Group Analyst Laura Conigliaro in New York wrote.

The shift toward retailers, announced by Mr Dell after he ousted protégé Kevin Rollins as CEO, is part of a larger campaign to resuscitate sales and earnings. In the last two fiscal years, Dell’s revenue growth fell to two per cent from 19 per cent. In May, Mr Dell said he would cut 10 per cent of the workforce.

‘Cheap’ to ‘cool’

Dell’s moves “definitely give confidence in the turnaround,” said Brent Bracelin, an Analyst at Pacific Crest Securities in Portland, Oregon, who raised his rating on the stock to “outperform” in April. Mr Dell wants to cast aside the perception of the company as a maker of “cheap” machines and convince buyers its consumer PCs are “cool” and its business machines powerful, Mr Jarvis, 44, said, “He knows precisely what we need to do.”

Michael Dell’s first tenure as CEO was marked by tight-fistedness. In 2003, Dell replaced workers who packed PCs into boxes in Austin, Texas, with machines, saving $ 4 million a year. He handed control to Rollins in July 2004. The company lost its pricing edge after Hewlett-Packard pared jobs and retirement expenses and leaned on retailers to help woo US consumers. The plan worked and Hewlett-Packard regained the PC market lead in mid-2006 after lagging behind Dell for three years.

Retail partners

Dell is now mimicking HP, teaming with retailers in the US, UK and Japan. Wal-Mart Stores, put Dell PCs in more than 3,500 locations and attributed an uptick in June sales to the machines.

In July, Carphone Warehouse, based in London, said customers who sign up for its AOL high-speed Internet service in the UK will get a free Dell computer. Bic Camera Inc, a discount electronics retailer based in Tokyo, will sell Dell PCs in 22 of its 24 stores this month. “You’ll see many tens of thousands of places where customers can buy Dell products all over the world,” Mr Dell said in a July 10 interview. “Give us some time — we are making steady progress.”

With its consumer designs, Dell is borrowing from Apple, which revived sales in the 1990s with tangerine and turquoise Macintosh machines. In June, Dell unveiled notebook PCs in colours, including pink and espresso. The goal for business buyers, who account for 85 per cent of revenue, is to convince them to buy more profitable server and storage machines, not just PCs, Mr Jarvis said.

Analyst skepticism

Not everyone is ready to endorse a Dell revival. Fifteen of the 32 analysts who track the shares rate them “hold,” 15 say “buy” and two suggest selling. By comparison, 22 analysts recommend buying HP shares, five say hold and two say sell.

“They are doing the right things, and I think they will ultimately recover,” said Brian Alexander, Analyst with Raymond James & Associates in St Petersburg, Florida, who rates Dell shares ‘outperform.’ “But the market is beginning to price in a linear recovery when, in fact, there are bound to be setbacks.”

Source: Bloomberg