Dell Screws Up a Good Thing, Part II

Dell Expects Lower Revenue and Earnings Per Share in Q2 Friday July 21, 7:30 am ET

That’s the headline on the press release that hit the tape this morning, and it pretty much says it all: Dell, as we Wall Street types like to say in our sophisticated technical financial lingo, just puked the quarter.

Call me an irrelevant data point in a vastly larger scheme of things, but I can’t help think the root of the problem goes back not merely to the resurgence of HP under Mark Hurd, but to the collapse of Dell’s customer support—discussed in “Dell Screws Up a Good Thing” this past January.

The funny thing about that piece—aside from the huge volume of similar tales of woe from readers—was the call I received from a guy named Rob at Dell who wanted to make up for the whole experience by reimbursing me the hundred-plus bucks I’d spent getting the technical support Dell no longer wanted to provide, as well as giving me his direct phone number in case I needed any help in the future.

Rob was very nice, and it was very kind of Dell to reimburse me for the expense, but, not being a dog, I found it impossible to feel kindly toward Dell even after Rob’s nice call and follow-up emails.

Fellow dog-owners know that if Dell’s tech support people had abused my dog Lucy for five hours—keeping her on hold, switching her to another line, asking her to pay for tech support she’d already paid for—Rob would have only had to offer Lucy a Milk-Bone, or scratch her back, or smile, and Lucy would have instantaneously gone from Sulking Dog to Euphoric Dog, wagging her tail, rolling over, licking Rob’s face and generally promising her love forever and ever and ever until the end of time and beyond.

But people, unlike dogs, don’t forget so easily, and while I appreciated the hundred bucks and the direct phone number, it didn’t change a thing about my feelings towards Dell.

Interestingly enough, Dell’s efforts in adding people like Rob are mentioned in today’s release:

Dell continues to make significant investments in customer service and support capabilities. The company is seeing positive results and will continue to invest to drive a superior customer experience. One more thing: unspoken in the press release is any impact from the current option-related problems engulfing many Silicon Valley companies. While Dell is not based in Silicon Valley, it has used options extensively as a key component of its employee compensation.

According to my Bloomberg, Dell spent more than $15 billion in the last four fiscal years buying back stock—yet fully diluted shares declined a mere 200 million shares over that time, thanks to the company’s willingness to dilute its shareholder base with large option grants. This is all perfectly legal, of course, but as options lose their place in the hearts and minds of investors, Dell may have to figure out a better way to keep costs down.

I suspect Dell’s problems are not over—no matter how many Robs they bring in.

Jeff Matthews I Am Not Making This Up

© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.